Question

Select the most appropriate answers from the alternatives given below and rewrite the sentence.

Reserves arising from capital receipts are known as __________.
a) Capital Reserves
b) Reserve fund
c) Secret Reserve
d) General reserve

Answer 1

Reserves arising from capital receipts are known as Capital Reserves.

Explanation:
The reserves created out of capital profits (the profits that are not earned in the normal business activities) or receipts are known as capital reserves. Such reserves are not available for distribution as dividend to shareholders. These reserves are used to write-off capital losses and for the issue of fully-paid bonus shares.