what is the need of capital reserve during redemption

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vinay (Querist)
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24 March 2010 when we redeem preference share, an amount equal to the nominal value of shares is transferred from profits or general reserve to Capital reserve. Why is it doing so? but during redemption of debentures , the amount equal is transferred to only general reserve, not to capital reserve?

Anurag Agarwal

Anurag Agarwal (Expert)
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24 March 2010 This is done because the amount paid on redemption is capital in nature, by transferring an equal amount to capital Reserve ensures that the same is not spent on revenue Activities.

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