Depreciation, Provisions and Reserves

Revenue reserves : Revenue reserves are created from revenue profits which arise out of the normal operating activities of the business and are otherwise freely available for distribution as dividend. Examples of revenue reserves are: General reserve; Workmen compensation fund; Investment fluctuation fund; Dividend equalisation reserve; Debenture redemption reserve; Capital reserves: Capital reserves are created out of capital profits which do not arise from the normal operating activities. Such reserves are not available for distribution as dividend. These reserves can be used for writing off capital losses or issue of bonus shares in case of a company.

Examples of capital profits, which are treated as capital reserves, whether transferred as such or not, are : Premium on issue of shares or debenture. Profit on sale of fixed assets. Profit on redemption of debentures. Profit on revaluation of fixed asset & liabilities.

Profits prior to incorporation. . . Difference between Revenue and Capital Reserve Revenue reserves and capital reserves are differentiated on the following grounds: .

Source of creation : Revenue reserve is created out of revenue profits, which arise out of the normal operating activities of the business and are