The reserves that are created out of those profits which are earned from carrying out the normal activities of a business are known as Revenue reserves. Whereas, the reserves that are created out of the capital profits of a business are known as Capital reserves. The given below are some points of difference between Revenue reserve and Capital reserve.
Difference between Revenue reserve and Capital reserve
|Point of Distinction||Revenue Reserves||Capital Reserves|
|Creation||Created out of revenue profits that are earned in the normal business activities.||Created out of capital profits that are not earned in normal business activities.|
|Distribution as Dividend||It can be utilized for distribution as dividends.||It cannot be utilized for distribution as dividends.|
|Aim||Created to meet the future uncertainties and enhancing the financial soundness of the business.||Created to write-off the capital losses or to meet the purpose laid down in the Companies Act.|
|Examples||General Reserve, Debenture Redemption Reserve, Retained Earnings, etc.||Profit on sale of fixed assets, Premium on issue of shares, Profit prior to incorporation, etc.|
Some of the examples of Revenue reserves are Debenture Redemption Reserve, Investment Fluctuation Reserve, General Reserve, etc. The Revenue reserves can be further classified as General Reserve and Specific Reserve.
The following are some examples of capital reserves.
- Profit on sale of fixed assets.
- Profit on re-issue of forfeited shares.
- Profit on revaluation of assets and liabilities.
- Premium received on issue of shares and debentures.
- Profit on redemption of debentures.
- Profit prior to incorporation.
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