A capital reserve is a specific category of reserve — distinct from revenue reserves — that a company maintains on the equity side of its balance sheet, arising from non-trading, capital transactions rather than operating profits. In India, common sources of capital reserve include: profits on the reissue of forfeited shares, gains on the redemption of preference shares or debentures at a discount, surplus arising from capital reduction or corporate restructuring, profits on the sale of fixed assets above book value, and government grants related to capital expenditure. Under the Companies Act, 2013 and Ind AS, capital reserves are generally not available for distribution to shareholders as dividends — they are preserved to absorb future capital losses or may be used for specific purposes defined by statute. For equity analysts and investors on Ventura Securities, the composition and movement of a company's capital reserve is an important element of balance sheet quality analysis — particularly for companies undergoing M&A transactions, capital restructuring, or those with significant asset disposals where capital reserve movements can indicate the economic substance of reported transactions.
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