Revenue reserve

A reserve which is created out oI the revenue proIit is called revenue reserve. Revenue proIit is earned in the
normal course oI the business. Revenue reserve reIers to the undistributed revenue proIit. It is created Ior
strengthening the Iinancial position, replacing deprecialble assets, redeeming liabilities, declaring uniIorm rate oI
dividend and conducting research and development Iunctions. II the reserve is not needed in the Iuture, it can be
distributed as dividend to the shareholders.

There are two types of revenue reserve:
a) General Reserve
A reserve which is created out oI the proIit not Ior a speciIic purpose is known as general reserve.General reserve
is used Ior general purpose as per the discretion oI the management. Usually, general reserve is used Ior
strengthening the Iinancial position and meeting Iuture contingencies and losses.

b) Specific Reserve
A reserve which is created out oI the proIit Ior a particular purpose is known as speciIic reserve. Such reserve
can not be utilized Ior any purpose other than speciIied. SpeciIic reserve is created by debiting the proIit and loss
appropriation account. It can be invested in outside securities. It serves Ior a speciIic purpose as to equalize
dividend or to redeem a Iixed liability or to replace a Iixed assets or to conduct a research and development work.
The Iollowing are the important types oI speciIic reserve:
* Dividend equalization Iund
* Sinking Iund
* Research and development Iund
Revenue reserve
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#0;03:0 #0807;0

Revenue reserve is created out oI the revenue proIit earned in the normal course oI the business. It reIers to the
undistributed revenue proIit. It can be distributed as dividend to the shareholders. Revenue reserve helps to
strengthen the Iinancial position oI the company and also helps to declare uniIorm rate oI dividend.

9028 70,93 94 70;03:0 70807;0
* General reserve
* Dividend equalization Iund
* Sinking Iund
* Research and development Iund



hat Is Capital Reserve?
Capital reserve is money that is built up by a municipality or business so that it can be used Ior large capital
expenditures. On the balance sheet, capital reserves are placed in a capital reserve account.
Sources oI Capital Reserve
1. Funds Ior a company's capital reserve can come Irom income Ior ordinary operations or other sources
such as government subsidies.
Purpose
2. The idea behind sequestering Iunds in a capital reserve account is to ensure that the company is
adequately Iunded to engage in capital expenditures and can eIIectively plan Ior them.
SigniIicance
3. In some industries, periodic capital expenditures are necessary to maintain or grow a business. Some
examples oI capital expenditures include the purchase oI Iixed assets or costs in preparing an asset Ior later
business use. Capital expenditures are intended to generate a Iuture beneIit.
Restrictions on Funds in Capital Reserve Account
4. Once Iunds are in placed in the capital reserve account, they ordinarily can only be used Ior capital
expenditures in the Iuture.
Publicly Traded Companies
5. OIten publicly companies will include recent capital expenditures in their annual reports so stockholders
or interested individuals have the opportunity to learn oI how capital reserves

,59, #0807;0

The reserve which is created out oI the capital proIit is known as capital reserve. Capital reserve is created out oI
the proIit oI some speciIic transactions oI capital nature. It is not available Ior the distribution to shareholders as
dividend. It is used to meet capital loss. Capital reserve is shown on the liabilities side oI the balance sheet.
Sometimes, it can be used to issue Iully-paid bonus shares.

tems of capital profit out of which capital reserve is created:
* ProIit on revaluation oI assets and liabilities.
* ProIit on sale oI assets
* ProIit on sale oI shares and debentures
* ProIit on IorIeiture oI shares
* proIit on redemption oI debentures
* proIit on purchasing running business
hat Does ,59, #0807;0 Mean?
A type oI account on a municipality's or company's balance sheet that is reserved Ior long-term capital
investment projects or any other large and anticipated expense(s) that will be incurred in the Iuture. This type oI
reserve Iund is set aside to ensure that the company or municipality has adequate Iunding to at least partially
Iinance the project.

nvestopedia explains ,59, #0807;0
Contributions to the capital reserve account can be made Irom government subsidies, donated Iunds, or can be set
aside Irom the Iirm's or municipality's regular revenue-generating operations. Once recorded on the reporting
entity's balance sheet, these Iunds are only to be spent on the capital expenditure projects Ior which they were
initially intended, excluding any unIoreseen circumstances
capital reserve
DeIinition
Resource created by the accumulated capital surplus (not revenue surplus) oI a Iirm, such as by an upward
revaluation oI its assets to reIlect their current market value aIter appreciation. Allocating such sums to capital
reserve means they are permanently invested and will not be paid as dividends
#0;03:0 #0807;0
Revenue reserve is created out oI the revenue proIit earned in the normal course oI the business. It reIers to the
undistributed revenue proIit. It can be distributed as dividend to the shareholders. Revenue reserve helps to
strengthen the Iinancial position oI the company and also helps to declare uniIorm rate oI dividend.

9028 70,93 94 70;03:0 70807;0
* General reserve
* Dividend equalization Iund
* Sinking Iund
* Research and development Iund
Diffrence between capital and revenue reserve
Revenue reserve are amount set aside Irom the proIit earned by the business to
1)strengthen the resources oI the business
2) protect the business against a sudden loss oI proIit which in turns will erode the ordinary share capital as well
as to
3) equalize the rate oI dividend in Iuture.

Meanwhile,
Capital Revenue arises due to capital transactions or non proIit and loss related i.e share premium, revaluation
reserves etc.
It is no available Ior dividend declaration as dividends can only be distributed Irom realized proIit.
It can be use Ior scrip issue oI shares and other uses Ior instance , oIIsetting the cost oI share issue