State the difference between capital reserve and revenue reserve.

Banking & FinanceManagementCompanies/Organisations

The major differences between capital reserve and revenue reserve are as follows −

Capital reserve

  • Funds to create financial long term projects/to write off capital expenses.

  • Created for non – trading activities.

  • Capital profit of the firm act as source of capital

  • main aim is to adhere statutory requirements/accounting principles

  • long term purpose

  • can’t be received in monetary value

  • used for legal purpose

  • utilized for purpose for which it is created

  • not available for dividend distribution

Revenue capital

  • Total amount retained to meet future contingencies.

  • Created for trading activities.

  • Revenue profit of the form act as a source.

  • Main aim is to meet unforeseen contingencies and improve entity’s financial position.

  • Short term and mid-term purpose.

  • Can received monetary value.

  • Portion is always re-invested.

  • Used for any or particular purpose only based type of reserves.

  • Dividend is distributed.

Published on 25-Jul-2020 06:46:05