RESERVE CAPITAL AND CAPITAL RESERVE UNDER COMPANIES ACT,2013. ACCOUNTS BY SONIA SETIA.

 RESERVE CAPITAL AND CAPITAL RESERVE

Under the Companies Act 2013, there isn't a specific provision for "reserve capital" as was the case in earlier company law statutes. However, the concept of "capital reserve" is still recognized and regulated under the Companies Act 2013. Let's delve into both:

 

1. Reserve Capital:

   - Reserve capital, as a term, was explicitly defined and regulated under earlier company law statutes, such as the Companies Act, 1956. It represented a portion of a company's authorized share capital that was kept aside and not available for distribution as dividends.

   - Reserve capital was meant to provide a safeguard for the company's creditors in case of insolvency or liquidation.

   - However, under the Companies Act 2013, the concept of reserve capital was not carried forward. Instead, the Act focuses more on the categorization and utilization of reserves, including capital reserves.

 

2. Capital Reserve:

   - Capital reserve, under the Companies Act 2013, refers to a reserve created out of capital profits rather than revenue profits.

   - It includes profits that arise from non-operating activities such as the sale of assets, revaluation of assets, or issuance of shares at a premium.

   - Capital reserves are governed by the provisions of the Companies Act 2013, which outline the circumstances under which such reserves can be created, utilized, and disclosed.

   - These reserves are typically used for specific capital-related purposes, such as financing future capital expenditures, writing off preliminary expenses of the company, or any other purpose permitted by law.

   - Capital reserves cannot be distributed as dividends to shareholders since they are not generated from the company's revenue or earnings.

 

In summary, while the Companies Act 2013 does not specifically regulate "reserve capital" as it did in earlier statutes, the concept of "capital reserve" remains relevant. Capital reserves are reserves created out of capital profits and are governed by the provisions of the Companies Act 2013, outlining their creation, utilization, and disclosure.

 

DIFFERENCE BETWEEN RESERVE CAPITAL AND CAPITAL RESERVE

RESERVE CAPITAL                   CAPITAL RESERVE

1.    It is that part of the                              1. It is that part of the reserves which is not free for

 Uncalled Capital which is called in the event distribution as dividend.

Of winding up.                 

 

2.    It is an Uncalled Capital.                       2. It is a reserve set aside out of capital profits.

 

3.    It is not Mandatory to have Reserve      3. It is appropriate to Transfer capital profits to

Capital.                                                     Capital reserve

 

4.    Special Resolution is required for          4. No resolution is required for capital reserve.

Reserve Capital.                                    

 

5.    It can not be used to write off capital   5. It can be used to write off capital losses.

Losses.

 

6.    It is not disclosed or shown in the         6. It is disclosed or shown in the Note to Accounts

Company’s Balance Sheet.                          On shareholder’s funds under the head Reserves

 

                                                                     And Surplus.

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