ICAI issues Exposure Draft of the ‘Guidance Note on Transfer of Capital Reserve’
- Blog|News|Account & Audit|
- 2 Min Read
- By Taxmann
- |
- Last Updated on 23 March, 2023
Latest from Taxmann
Certain Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 require capital reserves to be created toward unrealised profits arising from certain transactions or other events. However, currently, there is no specific guidance on their subsequent transfer to retained earnings or other free reserves. The Guidance Note sets out principles for the transfer of capital reserve to free reserve, including the timing when such a transfer can be made.
‘Capital Reserve’ is defined as a reserve of a corporate enterprise which is not available for distribution as a dividend (Glossary of Terms Used in Financial Statements issued by the Institute of Chartered Accountants of India (ICAI)). Neither Ind AS nor the Companies Act contains any specific requirement on how such reserves once created should be used. Any reserve created as per the requirements of the Act or other applicable law cannot be transferred to any other reserve except as per the requirements of the applicable law. Regarding capital reserve created pursuant to Ind AS the following two views are possible:
a) Capital reserve once created is in the nature of permanent capital for the Company. Hence, companies cannot utilise or transfer capital reserve to another reserve
b) Ind AS/other applicable guidance require amount to be credited to capital reserve because they are unrealised and cannot be used for dividend distribution at this stage. However, except for few reserves, the amount can be transferred to the retained earnings or other free reserves when the following two conditions are met:
-
- The company has realised the underlying amount or
- The amount has become available for distribution as dividend or issue of bonus shares under the Act or other applicable laws
Till both these conditions are met, the amount should continue to be reflected as capital reserve.
Click Here To Read The Full Story
Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.
Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.
The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:
- The statutory material is obtained only from the authorized and reliable sources
- All the latest developments in the judicial and legislative fields are covered
- Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
- Every content published by Taxmann is complete, accurate and lucid
- All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
- The golden rules of grammar, style and consistency are thoroughly followed
- Font and size that’s easy to read and remain consistent across all imprint and digital publications are applied
Sign Up
To subscribe to our weekly newsletter please log in/register on Taxmann.com
Latest Books
Everything on Tax and Corporate Laws of India
To subscribe to our weekly newsletter please log in/register on Taxmann.com
CA | CS | CMA
