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What is the difference between capital reserve and capital profit?

December 21, 2010


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Capital profit means a profit that is earned on the sale of a fixed asset or profit earned on raising capital for the business by issuing shares at premium. It is not earned in the ordinary trade of the business. Therefore it is not allowed to transfer this kind of profit to profit and loss account. It can only be credited to capital reserve account, or transferred to the capital account of the proprietor.

Capital reserve account belongs to the liability side of the balance sheet. It is a resource created by the accumulated capital surplus.

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