Difference between capital reserve and reserve capital Class 12
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
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.
| Basis | Reserve Capital | Capital Reserve |
| Meaning | It 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. |
| Creation | It is an uncalled capital | It is a reserve set aside out of capital profits. |
| Optional | It is not mandatory to have a reserve capital | It is appropriate to transfer capital profits to capital Reserve |
| Resolution | A special resolution is required for reserve capital | No resolution is required for capital reserve. |
| Writing off Capital Losses | It can not be used to write off capital losses. | It can be used to write off capital losses. |
| Disclosure | It 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. |
