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Class 11
Accountancy
Depreciation, Provisions and Reserves
distinguish between lsquo revenue reserve rsquo...

Question:
Distinguish between ‘revenue reserve’ and ‘capital reserve’.

Answer:

Revenue Reserve Capital Reserve

Revenue reserve is the type of reserve that is created from the net profit that a company makes during a financial year.

This reserve is not distributed to shareholders in the form of dividends but is kept for meeting future requirements of the business.

Revenue reserve is created from revenue profit which is earned from the daily operations of the business. Revenue reserve is added in a profit and loss appropriation account.

A capital reserve is the type of reserve that is created from capital profits.

The purpose for which a capital reserve is created is for preparing the company for sudden events like inflation, business expansion, funds for a new project.

A capital reserve is created from capital profit earned through sales of capital assets such as the sale of fixed assets, profit on the sale of shares.

The special property of capital reserve is that these are permanently invested and cannot be used for any other purpose apart from which it is created.

Revenue Reserve	Capital Reserve
Revenue reserve is the type of reserve that is created from the net profit that a company makes during a financial year. This reserve is not distributed to shareholders in the form of dividends but is kept for meeting future requirements of the business. Revenue reserve is created from revenue profit which is earned from the daily operations of the business. Revenue reserve is added in a profit and loss appropriation account.	A capital reserve is the type of reserve that is created from capital profits. The purpose for which a capital reserve is created is for preparing the company for sudden events like inflation, business expansion, funds for a new project. A capital reserve is created from capital profit earned through sales of capital assets such as the sale of fixed assets, profit on the sale of shares. The special property of capital reserve is that these are permanently invested and cannot be used for any other purpose apart from which it is created.

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Mr. Sunrise started a business for buying and selling of stationery with ₹ 5,00,000 as an initial investment. Of which he paid ₹ 1,00,000 for furniture, ₹ 2,00,000 for buying stationery items. He employed a sales person and clerk. At the end of the month he paid ₹ 5,000 as their salaries. Out of the stationery bought he sold some stationery for ₹ 1,50,000 for cash and some other stationery for ₹ 1,00,000 on credit basis to Mr. Ravi. Subsequently, he bought stationery items of ₹ 1,50,000 from Mr. Peace. In the first week of next month there was a fire accident and he lost ₹ 30,000 worth of stationery. A part of the machinery, which cost ₹ 40,000, was sold for ₹ 45,000.

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Question:
Distinguish between ‘revenue reserve’ and ‘capital reserve’.

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Question: Distinguish between ‘revenue reserve’ and ‘capital reserve’.

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Question:
Distinguish between ‘revenue reserve’ and ‘capital reserve’.