What is Capital Reserve? State its uses. - Vidyadip

Question

What is Capital Reserve? State its uses.

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Answer

Meaning: The reserve which is created out of capital profit and cannot be used fordistribution of dividend is known as capital reserve. Uses: Capital reserve can be used for the following purposes:
$(1)$ To write off loss onsale of fixed assets
$(2)$ To write off intangible assets like good will and fictitious assetslike preliminary expenses, discount on issue of debentures, etc.
$(3)$ For distribution of bonus share, to shareholders if there is provision in Articles of Association of the company.
$(4)$ Dividend can be paid out of capital reserve only under specific circumstances subjectto certain conditions.

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