Difference between capital reserve and reserve capital Class 12

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Looking for What is the difference between capital reserve and reserve capital as per the class 12 CBSE, ISC, and state Board.

See, this topic is concerned with the Accounting for share capital chapter of Accountancy class 12.

Let’s first understand

Table of Contents

What is Reserve Capital.

Reserve Capital is a part of the Subscribed Capital that a company with a special resolution, not to call except in the event of winding up of the company.

Such shares are shown as ‘Subscribed but not Fully Paid up’.

Lets understand it with a simple example

Suppose a X Ltd issued 10,000 Equity shares @ ₹ 100 each. All shares are subscribed, but company resolve only to call ₹ 80 per share and ₹ 20 will be called at the time when the company is wound up.

Thus 10,000 @ ₹ 20 per share = ₹ 2,00,000 is the Reserve Capital.

What is Capital Reserve

Capital Reserve is a reserve, which is created out of capital profits and is not free for distribution as dividend.

Difference between Reserve Capital and Capital Reserve

Following are the differences between Reserve Capital and Capital Reserve on different parameters.

BasisReserve CapitalCapital Reserve
MeaningIt is that part of the uncalled capital which is called in the event of winding up.It is that part of the reserves which is not free for distribution as dividend.
CreationIt is an uncalled capitalIt is a reserve set aside out of capital profits.
OptionalIt is not mandatory to have a reserve capitalIt is appropriate to transfer capital profits to capital Reserve
ResolutionA special resolution is required for reserve capitalNo resolution is required for capital reserve.
Writing off Capital LossesIt can not be used to write off capital losses.It can be used to write off capital losses.
DisclosureIt is not disclosed, i.e., shown in the company’s Balance Sheet.It is disclosed, i.e., show in the Note to Accounts on Shareholders’ Funds under the head ‘Reserves and Surplus.
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