What is the accounting treatment of capital reserve?

Answer 1

Capital reserve: Capital reserve represents surpluses or profit in respect of certain type of transaction: example, on scale of a fixed assets at a price in excess of cost,realisation of profit on issue of fortified shares etc. it is a reserve, which doesn't include any amount regarded as free for distribution through the profit and loss account. It includes share premium, capital redemption reserve , development rebate reserve . profits on reissue or fortified shares it also includes any grants received from central or state government or other assets gifted by central or state governments free of cost are nationally valued and credited to capital reserve. a) Grant-in -aid from the government of India . b) Grant-in aid from others. Government grants defined: government grants are assistance by governments in the form of transfer of resources to an enterprise in return for the past and future compliance with certain conditions relating to the operating activities of the enterprise. Non - monetary government grants: the non -monetary government grants may be in the shape of free land or other resources for the use of the company. The capital reserve may be utilized in the following manner: a) To utilized for writing down fictitious assets or losses (subject to provision in the articles) or for issuing bonus shares. But the amount of share premium or capital redemption reserve account can be utilized only for the purpose specified in section 78 and 80 respectively of the companies act. b) To write -off capital losses on transfer of assets received free of cost or assets acquired out of grant, which had been accounted for under capital reserve.