Premium on issue of shares
Profits prior to incorporation
Dividend equalisation reserve
Reserve created out of profit on the sale of fixed assets
Answer is Right!
Answer is Wrong!
The correct answer is C. Dividend equalisation reserve.
A capital reserve is a reserve that arises from a capital transaction, such as the issue of shares or the sale of fixed assets. Profits prior to incorporation are not capital transactions, so they are not capital reserves. Premium on issue of shares is a capital reserve because it arises from the issue of shares. Reserve created out of profit on the sale of fixed assets is also a capital reserve because it arises from the sale of fixed assets.
A dividend equalisation reserve is a reserve that is created to smooth out fluctuations in dividends. It is not a capital reserve because it does not arise from a capital transaction.