Question

Capital Reserve is created:

• A. Out of profits on sale of fixed assets
• B. Out of profits on revaluation of fixed assets
• C. Out of premium received on issue of shares
• D. All of the above

Answer 1

Answer:

D. All of the above

Capital Reserve: Created out of capital profits, not from regular business profits. Sources of Capital Reserve: Profit on sale of fixed assets – capital profit, not earned from normal business operations. Profit on revaluation of fixed assets – arises due to increase in asset value. Share premium – amount received over face value of shares issued. Use: Cannot be used for dividend distribution; mainly used for writing off capital losses or issuing bonus shares.