Capital Surplus
Capital surplus is a portion of profits that companies or institutions use to increase capital instead of distributing dividends. It is funds that companies or institutions voluntarily contribute to the capital surplus account.
Definition: Capital reserve fund is a portion of the profit that a company or institution uses to increase capital rather than distribute dividends. It is the funds voluntarily injected into the capital reserve fund account by the company or institution. Capital reserve funds are typically used for business expansion, debt repayment, or other long-term investments.
Origin: The concept of capital reserve funds originated from the need for corporate financial management, dating back to the late 19th and early 20th centuries. At that time, companies began to retain part of their profits for reinvestment and business expansion to ensure long-term stable development.
Categories and Characteristics: Capital reserve funds can be divided into statutory capital reserve funds and discretionary capital reserve funds. Statutory capital reserve funds are the portion that must be extracted according to legal requirements, while discretionary capital reserve funds are the portion that companies voluntarily extract based on their needs. The characteristic of statutory capital reserve funds is that they are mandatory and must be extracted according to the legally prescribed ratio; discretionary capital reserve funds are flexible, and companies can decide the extraction ratio based on their actual situation.
Specific Cases: Case 1: A company shows a net profit of 10 million yuan in its annual financial report. According to legal requirements, the company must extract 10% of the net profit as a statutory capital reserve fund, which is 1 million yuan. Of the remaining 9 million yuan, the company decides to extract another 2 million yuan as a discretionary capital reserve fund for future expansion projects. Case 2: Another company shows a net profit of 5 million yuan in its annual financial report. Since the company has already completed all statutory capital reserve fund extractions, it decides to use the entire 5 million yuan as a discretionary capital reserve fund for debt repayment.
Common Questions: 1. Can capital reserve funds be used to distribute dividends? Answer: No, capital reserve funds are used to increase capital and reinvest, not for distributing dividends. 2. Must companies extract discretionary capital reserve funds? Answer: No, discretionary capital reserve funds are voluntarily extracted by companies based on their needs.
