Distinguish between : (1) General Reserve and Capital Reserve : - Vidyadip

Question

Distinguish between : $(1)$ General Reserve and Capital Reserve :

✓

Answer

Difference between General Reserve and Capital Reserve:

Points	General Reserve	Capital Reserve
$1.$ Meaning	If certain amount is kept aside from the profit of the unit for strengthening the economic position of the unit, such amount is called the General Reserve.	The reserve which cannot be utilised for distribution of dividend is called Capital Reserve.
$2.$ Profit	Generally, general reserve is the revenue profit of the business, because it is created from the revenue profit.	Capital reserve is the capital profit of the business, because the amount of capital profit is taken to Capital Reserve.
$3.$ Uses	General reserve can be used for any purpose like for the growth of the business or for distribution of dividend or to meet with contigent requirements	Capital reserve can be used to write off loss on sale or revaluation of fixed assets or to write off intangible and fictitious assets like goodwill, preliminary expenses, discount on issue of shares or debentures
$4.$ Dividend	General reserve can be used for distribution of dividend.	Generally, capital reserve cannot be used for distribution of dividend. Divided can be paid out of capital reserve only under specific circumstances subject to certain conditions.
$5.$ The effect in Balance Sheet	General reserve is shown in balance sheet on liabilities side under the heading of Reserve and Surplus.	Capital reserve is shown in the Balance sheet on liabilities side under the heading of 'Reserve and Surplus' separate to general reserve.

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