Treatment of Capital Reserve in Cash Flow Statement
Confused, what is the accounting treatment of Capital Reserve in Cash Flow Statement.
Let’s first understand
What is Capital Reserve
Capital Reserve is the reserve that is prepared by the capital profits arising from transactions of capital nature.
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Where Capital Reserve go in Cash flow statement.
As the capital reserve is not made through regular profit. Thus it is not added or subtracted to arrive at a net profit before tax and extraordinary items.
It is neither an operating, investing, or financing activity.
Thus the amount of Capital Reserve is not considered anywhere in the cash flow statement.
In short, just ignore the amount of capital reserve if given in the question while preparing cash flow statement.
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