Question

What are the Reserves created out of capital profits known as?

Answer 1

Reserves created out of capital profit are known as capital reserves. Capital reserves are not available for distribution as profit. In case of companies, following are the examples of capital profits :

• Profit prior to incorporation
• Premium on issue of debentures and shares
• Profit on reissue of forfeited shares.
• Profit on redempltion of debentures
• Profit on sale of fixed assets
• Profit on revaluation of fixed asset
• Profit on sale of whole undertaking or a part of it.