What is the Difference Between Capital Reserve and Reserve Capital?

The main difference between capital reserve and reserve capital lies in their nature, purpose, and source of funds. Here are the key differences between the two:

Nature and Purpose:

Capital Reserve: It is a portion of a company's profit that it can use for specific purposes, such as funding long-term projects, reinvesting in assets, or providing financial stability during emergencies.
Reserve Capital: It refers to the portion of authorized share capital not issued to shareholders initially but can be called up when the company is on the verge of liquidation.

Source of Funds:

Capital Reserve: These reserves are created from capital profits, such as profits from the sale of fixed assets, profit on revaluation of fixed assets, or premium on the issue of shares and debentures.
Reserve Capital: This is an unspecified amount set aside by a company to be used only when the company is facing liquidation or needs funds to pay off debts.

Disclosure in Financial Statements:

Capital Reserve: It is shown on the balance sheet under the head "Reserves and Surplus".
Reserve Capital: It is not shown in the balance sheet and is only called up when the company is on the verge of liquidation.

In conclusion, while both capital reserve and reserve capital serve as financial cushions for a company, they differ in their nature, purpose, and source of funds. Capital reserve is created from capital profits for specific purposes, while reserve capital is an unspecified amount set aside for use during liquidation or emergencies.

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What is the Difference Between Capital Reserve and Reserve Capital?

Comparative Table: Capital Reserve vs Reserve Capital

Here is a table comparing the differences between Capital Reserve and Reserve Capital:

Benchmark	Capital Reserve	Reserve Capital
What is it?	A portion of a company's profit, created from capital profits like profit on sale of fixed assets, profit on revaluation of fixed assets, premium on issue of shares and debentures, etc.. It is set aside for specific purposes such as funding long-term projects or providing financial support during emergencies.	An unspecified amount of the authorized share capital that is not issued to shareholders initially but can be called up by the company if necessary, usually in the event of winding up.
Source of Funds	Made up of capital profits.	Created out of authorized capital.
Purpose	Used for various purposes such as starting a new project, investment, or funding long-term projects. It can also be used to write off fictitious assets or capital losses.	It is uncalled, and the shareholders can get their share of profit from the reserve capital. It is used only when the company goes into liquidation.
Necessity	Creation of Capital Reserves is mandatory for all companies.	Creation of Reserve Capital is not necessary and requires a special resolution to be passed by the company at the Annual General Meeting (AGM).
Shown on Balance Sheet	Yes, it appears under the head Reserves & Surplus on the equity & liabilities side of the balance sheet.	No, it is not shown on the balance sheet.

Guilherme Mazui

Guilherme Mazui is graduated in journalism from the Federal University of Minas Gerais (UFMG) and a master's degree in Communication from the University of São Paulo (USP). In addition, he has experience in advertising writing and has worked as a content editor in several companies.