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Difference Between Capital Reserve and General Reserve:

Learning Objective:

  • What is the difference between capital reserve and general reserve?

Capital Reserve:

1. It is created out of the profit earned not in the normal course of business. For example, to a bookseller, profit on sale of books is a regular profit. But profit earned on sale of something other than books is capital profit.
2. Capital employed in business is increased permanently.
3. It is usually not available for the payment of dividends.
4. Liability and loss of capital nature can only be met by it.

General Reserve:

1. It is created out of profit earned in the normal course of business.
2. It increases capital employed temporarily.
3. It is available for the payment of dividends.
4. It is available for meeting any type of liability or loss.
 

More study material from this topic:

Definition, explanation and causes of depreciation
Depreciation is not a matter of valuation but a means of cost allocation
Activity method of depreciation
Straight line method of depreciation
Sum of the years' digits method of depreciation
Reducing balance method
Annuity method
Depreciation fund method or sinking fund method
Insurance policy method
Revaluation method
Depletion method
Machine hour rate, mileage, and global method
Methods of recording depreciation
Reserves
Difference between general reserve and specific reserve
Difference between capital reserve and general reserve
Difference between reserve and reserve fund
Difference between provision and reserve




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