Treatment of capital reserve in cash flow if the information says it is the profit on sale of investment
Answers
Answered by
0
What is the treatment of capital reserve in cash flow statement?
Answer
89
Follow
Request
More
Ad by David Price
Kids and money: When is the right time?
Learn and share how to teach kids with money.
Learn More
2 ANSWERS

Asha Kanta Sharma, Branch Accountant at Best IT World Private Limited (2014-present)
Answered Feb 12, 2017
A cash flow statement provides information about the changes in cash and cash equivalents of a business by classifying cash flows into operating, investing and financing activities. It is a key report to be prepared for each accounting period for which financial statements are presented by an enterprise.
Again on the other hand Capital Reserve is a fund or account set aside for major long-term investment projects or other anticipated expenses of the organisation that will be incurred in the future. It is not created out of the profit earned in normal course of the business. Capital reserve is created out of the profit earned from some specific transactions of capital nature. Companies can also create capital reserves by selling relatively illiquid assets, such as equipment, real estate or intellectual property. Once recorded on the reporting entity's balance sheet, these funds are only to be spent on the capital expenditure projects for which they were initially intended, excluding any unforeseen circumstances. The funds constituting the capital reserve account are not used to pay dividends, repurchase shares or engage in other capital return programs.
The examples of capital profit from which capital reserve is created are as follows:
* Profit on sale of fixed assets
* Profit on sale of investment
* Profit on revaluation of assets and liabilities
* Premium on issue of shares and debentures
* Profit on re-issue of forfeited shares
* Discount on redemption of debentures
* Profit on purchase of an existing business
So, No Treatment needs to be carried out in Cash Flow Statement for Capital Reserve. But one only need to account all the receipt and payment of cash in Cash Flow Statement and any Profit or Loss from Sale of any Capital Asset will must needs to be Transferred to Capital Reserve and must be deducted from Sales Proceeds in Cash Flow Statement.
Answer
89
Follow
Request
More
Ad by David Price
Kids and money: When is the right time?
Learn and share how to teach kids with money.
Learn More
2 ANSWERS

Asha Kanta Sharma, Branch Accountant at Best IT World Private Limited (2014-present)
Answered Feb 12, 2017
A cash flow statement provides information about the changes in cash and cash equivalents of a business by classifying cash flows into operating, investing and financing activities. It is a key report to be prepared for each accounting period for which financial statements are presented by an enterprise.
Again on the other hand Capital Reserve is a fund or account set aside for major long-term investment projects or other anticipated expenses of the organisation that will be incurred in the future. It is not created out of the profit earned in normal course of the business. Capital reserve is created out of the profit earned from some specific transactions of capital nature. Companies can also create capital reserves by selling relatively illiquid assets, such as equipment, real estate or intellectual property. Once recorded on the reporting entity's balance sheet, these funds are only to be spent on the capital expenditure projects for which they were initially intended, excluding any unforeseen circumstances. The funds constituting the capital reserve account are not used to pay dividends, repurchase shares or engage in other capital return programs.
The examples of capital profit from which capital reserve is created are as follows:
* Profit on sale of fixed assets
* Profit on sale of investment
* Profit on revaluation of assets and liabilities
* Premium on issue of shares and debentures
* Profit on re-issue of forfeited shares
* Discount on redemption of debentures
* Profit on purchase of an existing business
So, No Treatment needs to be carried out in Cash Flow Statement for Capital Reserve. But one only need to account all the receipt and payment of cash in Cash Flow Statement and any Profit or Loss from Sale of any Capital Asset will must needs to be Transferred to Capital Reserve and must be deducted from Sales Proceeds in Cash Flow Statement.
Similar questions