Distinguishing Capital vs. Revenue Reserves

Steps:

• Recall capital reserves arise from non-trading sources like share premiums or asset revaluations.
• Recall revenue reserves come from business profits, such as retained earnings or general reserves.
• Match choices: Identify share premium as capital (from share issuance) and general reserve as revenue (from profits).
• Eliminate mismatches where both items are from the same category.

Why D is correct:

• Share premium is a capital reserve per accounting standards (e.g., IAS 32), created from excess over nominal share value; general reserve is a revenue reserve from undistributed profits.

Why the others are wrong:

• A: Both general reserve and retained earnings are revenue reserves from profits.
• B: Retained earnings is a revenue reserve from operations; revaluation reserve is a capital reserve from asset adjustments.
• C: Both revaluation reserve and share premium are capital reserves from non-operational sources.

Final answer: D