Question

What is Reserve Capital? Does it differ from Capital Reserve?

Hint:

Reserve Capital strengthens a company's ability to meet obligations during liquidation, while Capital Reserve enhances financial stability and supports long-term growth.

Answer 1

Reserve Capital refers to the portion of the uncalled share capital of a company that can only be called up in the event of the company's liquidation. It is created through a special reSolutions and provides a financial safety net for creditors. Difference from Capital Reserve:
1. Nature: Reserve Capital is uncalled capital, whereas Capital Reserve is a reserve created from capital profits, such as profits from the sale of fixed assets or revaluation of assets.
2. Utilization: Reserve Capital can only be used to settle liabilities during liquidation, whereas Capital Reserve is used for specific purposes like issuing bonus shares or writing off capital losses.
3. Requirement: Reserve Capital is mandatory only if specified, while Capital Reserve arises from the normal operations of the company.