AbhishekBatabyalHelpful In: 1. Financial Accounting > Miscellaneous What is capital reduction account? What is capital reduction account? Share Facebook You must login to add an answer. Username or email* Password* Captcha* Remember Me! Forgot Password? Need An Account, Sign Up Here 1 Answer Voted Recent Ayushi Curious Pursuing CA 2022-03-26T16:36:36+00:00Added an answer on March 26, 2022 at 4:36 pm Introduction A capital reduction account is an account used to pass entries related to the internal reconstruction of a company. During reconstruction, paid-up capital reduced is credited to this account; hence its name is capital reduction account. It is also known as the reconstruction account. Type of account A capital reduction account is a temporary account open just to carry out internal reconstruction. It represents the sacrifices made by the shareholders, debenture holders and creditors. Also, any appreciation in the value of assets is credited to this account. It is closed to capital reduction when internal reconstruction is completed. Entries passed through capital reduction account When paid-up capital is cancelled. When paid-up capital is cancelled, the share capital account is debited and the capital reduction account is debited as share capital is getting reduced. Share Capital A/c Dr. Amt To Capital Reduction A/c Cr. Amt When assets and liabilities are revalued At the time of internal reconstruction, the gain or loss on revaluation is transferred to the capital reduction account instead of the revaluation reserve. Writing off of accumulated losses and intangible assets The credit balance of the capital reduction account is used to write off the accumulated losses and intangible assets like goodwill, patents etc which are unrepresented by capital. The capital reduction account is debited and profit and loss account and intangible assets accounts are credited. Capital Reduction A/c Dr. Amt To Profit and loss A/c Cr. Amt To Goodwill/ Patents A/c Cr. Amt Treatment in books of account The balance in the capital reduction account, whether debit or credit, it is transferred to the capital reduction account. Hence, it doesn’t appear on the balance sheet. 0 Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp Related Questions What are some examples of deferred revenue expenses? Are brands intangible assets? What comes in debit side of Realisation account? What is recorded in the Realisation account? What is not included in Realisation account? What is recorded on the credit side of a Realisation account? Can accounts payable have a debit balance?