How is capital reserve calculated in holding company?
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It works in quite a different way. When a company sells off its assets and makes a profit, a company can transfer the amount to capital reserve.
Since a company sells many assets and shares and can’t always make profits, it is used to mitigate any capital losses or any other long-term contingencies.
It has nothing to do with trading or operational activities of the business. It is created out of non-trading activities and thus capital reserve can never be an indicator of the operational efficiency of the business.
Another thing that is important is the nature. It is not always received in the monetary value but it is always existent in the book of accounts of the business.
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