QUOTE(nujikabane @ Oct 8 2015, 10:52 PM)
Noted on the explanations.
However, I am unsure as to how the Capital Reserves is derived,
or the determining factor in putting valuations to the amount.
Is it based on the consensus of the Board of Directors ?
Or is the a specific % of, say, Cash & cash equivalent ?
Say,
a company has
$1.0m in cash & cash equivalent.
$0.5m in current & non-current liabilities
$0.1m for dividends to shareholder
What would the Capital Reserves be then ?
Capital reserves are simply the categories used to 'put aside some money' for some specific (usually future) purposes of the company. The purpose could be future investment, making more buffer for company's net worth, etc. The purpose is simply subject to the discretion of the company management, i.e. no hard and fast rule as to the amount of Capital Reserves.
An analogy in our life would be savings for marriage, house downpayment, etc.
For the example of the company you have given, you simply need to remember that "Assets = Liabilities + Equity". In that case, since you have not given the "Share Capital" amount under "Equity" category, we can deduce the amount of "Capital Reserves". Take note that, "Equity = Share Cap + Share Premium + Reserves (if any) + Retained Earnings".
Hope that my writings can clarify your understanding.