What are the sources and uses of capital reserves?

Capital reserve is the part of the enterprise's accumulation that comes from other than profits. It is the enterprise's "quasi capital" and its only purpose is to convert it into capital according to law. Capital may not be distributed as investment profits or dividends. When an enterprise converts capital reserves into capital in accordance with legal procedures, it is a change in the internal structure of owners' equity. It does not change the total amount of owners' equity, nor does it generally change each investor's share of the total owner's equity. .

Capital reserve is a component of owners' equity. Its increase will directly lead to an increase in the company's net assets. Therefore, capital reserve information is important to investors and creditors. The decision-making of users of accounting information is very important.

The sources of capital reserves mainly include two types according to their uses:

One ​​type can be directly Capital reserves used to increase capital include capital (or equity) premiums, receipt of cash donations, transfer of appropriations, foreign currency capital conversion differences and other capital reserves, etc. Among them, the capital (or equity) premium refers to the part of the funds invested by corporate investors that exceeds their share of the registered capital, which is called equity premium in a joint-stock company; accepting cash donations refers to the amount of funds invested by corporate investors in excess of their share of registered capital; accepting cash donations refers to the amount of funds invested by corporate investors in excess of their share of registered capital; accepting cash donations refers to the amount that the company invests in The capital reserve increased by donation; the transfer of appropriation means that the enterprise receives appropriation from the state specifically for technological transformation, technical research, etc. After the project is completed, the part transferred to the capital reserve according to regulations shall be transferred to the capital reserve according to the regulations. The transferred amount is recorded in the account; the foreign currency capital conversion difference refers to the capital conversion difference caused by the different exchange rates used by the enterprise to accept foreign currency investment; other capital reserves refers to the capital reserves formed in addition to the above capital reserves. , as well as the amount transferred from various reserve items of capital reserve, including debts exempted by creditors.

The other type is capital reserves that cannot be directly used to increase capital, including reserves for accepting donations of non-cash assets and reserves for equity investments. Among them, the reserve for receiving non-cash assets from donations refers to the capital reserve increased by the enterprise as a result of accepting donations from non-cash assets; the reserve for equity investment refers to the amount of capital reserve that the enterprise increases due to the acceptance of non-cash asset donations when the enterprise adopts the equity method to account for the long-term equity investment of the invested unit. The capital reserve is increased by accepting donations and other reasons, and the capital reserve of the investing enterprise is increased accordingly according to its shareholding ratio or investment ratio.

(2) Purpose of capital reserve.

Capital reserve essentially belongs to the category of invested capital. Due to reasons such as the adoption of the registered capital system in our country,This led to the creation of capital reserves. my country's "Company Law" and other laws stipulate that the purpose of capital reserves is mainly to increase capital, that is, to increase paid-in capital (or share capital). Although the conversion of capital reserves into capital does not lead to an increase in the total amount of owners' equity, the conversion of capital reserves into capital can, on the one hand, change the capital structure of the enterprise and reflect the potential of the enterprise's steady and sustainable development; on the other hand, it can also change the company's potential for steady and sustainable development. For the company, it will increase the shares held by investors, thereby increasing the circulation of the company's shares, thereby activating the stock price, increasing the trading volume of the stock and the liquidity of capital. In addition, for creditors, paid-in capital is the most essential reflection of owners’ equity and an important factor in their consideration of investment risks. Therefore, converting capital reserves into capital can not only better reflect the rights and interests of investors, but also affect the credit decisions of creditors.