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Capital reserve and reserve capital

poonamsingh (Student CS) (24 Points)

18 September 2012

In which Sections of Companies Act i can find Definition and treatment of Capital Reserve and Reserve Capital?

Please suggest...

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2 Replies

Arun Kumar (Article Assistant) (83 Points)
Replied 18 September 2012

I dont know about the sections,

But Capital reserve is created out of capital profits. It is not available for distribution of dividends.

Whereas Reserve capital is the part of authorised capital which is not called up by the company. It can be used by the company only in case of liquidation only.

Jajmeet singh (Student CS) (21 Points)
Replied 19 September 2012

Reserve capital is that part of UNCALLED CAPITAL which can be called up only in the event of winding up of the co. by liquidator. As per sec 99 a limited co. may by a special resolution,determine that a portion of its uncalled capital shall be called up only in the event of winding up.

On the oter hand capital reserve is created out of the profits earned in special circumstances for eg..

a. profits prior to incorporation

b. profits on acquisition of business

c. profits on sale of fixed assets

d. profits on reissue of forfeighted shares

e. profit on redemption of debentures

Points of difference between capital reserve and reserve capital

1) Reserve capital is a part of share capital whereas capital reserve is not a part of share capital

2) special resolution has to be passed for reserve capital and not for capital reserve

3) It is optional for the co.s to have a reserved capital whereas capital reserves are mandatory whenever co.s earns profits