Capital profits are those profits that are earned from the disposal or sale of an asset and the redemption of debentures. These are not earned in the course of normal business operations and are non-recurring in nature i.e. these are not frequently earned. Capital profits are transferred to Capital Reserve and are shown on the Liabilities Side of the Balance Sheet. When the assets of a firm are sold at a price above their book values, then the amount realized in excess of the book value is regarded as capital profit.
The capital expenditure results in an income or benefits for a longer period that extends for a period of more than a year. This expenditure is shown in the Balance Sheet
A promissory note is an unconditional promise in writing given by the buyer (or creditor) to the seller (or debtor) to pay the amount of money specified therein to the seller or to the order of seller or to bearer.
The reserves that are created out of the capital profits of a business are known as Capital reserves. Capital profits are the profits that are not earned in normal business activities.
Secret reserves are those reserves that exist in the business to strengthen its financial position but are not disclosed in the Balance Sheet.