Explanation:

Meaning of Capital Reserve:A reserve which is created out of the capital profit is known as capital reserve. 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. Capital reserve is not available for the distribution to the shareholders. 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