Many people think that both capital reserve and reserve capital are same and there are no differences between the two, which is not correct, they both are different from each other –
1. Capital reserve is created out of capital profits (profit due to reevaluation of assets) and therefore it is not available for distribution as dividend to the shareholders, while reserve capital is that part of authorized capital of a company which is not called up by the company. Also there is no special resolution required as in the case of reserve capital, for creating capital reserve
2. Reserve capital can be used by the company only in case of liquidation of the company while capital reserve can be used by company at any time for purchasing long term assets by the company.
3. Capital reserve is shown on the liabilities side of the balance sheet while Reserve capital is not disclosed in the balance sheet of the company.
4. Capital reserve can be used by the company to write off capital losses which arises due to selling of assets at lower prices than the book value of that asset while Reserve capital cannot be used for that purpose.