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Trading & Profit or Loss Account

is used to wr...

Question

___________ is used to writing off capital losses or issue of bonus shares in case of a company.

A

Revenue Reserve

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B

Capital reserve

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C

Both

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D

None of the Above

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Solution

The correct option is B Capital reserve
Capital Reserve is the part of the profit or surplus, maintained as an account in the Balance Sheet that can be used only for special purposes. It is made out of capital profits earned due to the sale of fixed assets at a price greater than its cost or profit on the reissue of forfeited shares. So Capital reserve is created when there is capital profit i.e. profit on sale of assets or upward revaluation of assets.
Following are the uses of capital reserve :
To meet future capital losses
To issue as fully paid bonus shares
To strengthen the financial position of the business.

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