The term Capital Reserve refers to an account on a balance sheet containing capital reserved for specific circumstances. Any profit that arises in a company in special circumstances is called Capital Reserve. The capital in the Capital Reserve is meant for capital expenditures. It should thereby help prepare the company for any unforeseen events like inflation, instability, need to expand the business or to get into a new and urgent project.
The Capital Reserve is one of several types of reserve accounts that companies keep in order to prepare for future expenditures. It is produced by accumulating capital surplus of a company. This occurs when an asset is re-evaluated positively and its higher value is reflected in its current market after its appreciation.
The Capital Reserve account can be found on the balance sheet under the shareholder equity section.
- Capital Expenditure