What Is a Capital Reserve?

Capital reserve is also called non-distributable reserve. Surplus retained by a corporation in accordance with the law or the articles of association. The purpose is to strengthen the company's capital strength or to prepare for future equipment upgrades and expansion of reproduction. This reserve cannot be distributed to shareholders as dividends. It is listed as capital on the balance sheet; it is the deduction of profit when calculating profit. Capital reserves are generally divided into two categories. One is the statutory reserve drawn in accordance with the law, including the asset compensation reserve drawn from the revaluation of the asset value; the second is the arbitrary reserve drawn according to the company's articles of association or the resolution of the shareholders meeting gold. ^[1]

Capital reserve

Right!

Capital reserve is also called non-distributable reserve. Surplus retained by a corporation in accordance with the law or the articles of association. The purpose is to strengthen the company's capital strength or to prepare for future equipment upgrades and expansion of reproduction. This reserve cannot be distributed to shareholders as dividends. It is listed as capital on the balance sheet; it is the deduction of profit when calculating profit. Capital reserves are generally divided into two categories. One is the statutory reserve drawn in accordance with the law, including the asset compensation reserve drawn from the revaluation of the asset value; the second is the arbitrary reserve drawn according to the company's articles of association or the resolution of the shareholders meeting gold. ^[1]

Also known as capital reserve, it refers to a fund earmarked by commercial banks from retained earnings to meet upcoming major events related to equity.