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Reserve and Surplus in Balance Sheet

Meaning

Reserve and surplus are created from undistributed profits for specific purposes which can be used by the company in future according to their nature and purpose. Reserves are usually money earmarked by the company for specific purposes. When a reserve is created, it does not reduce the aggregate net profit. But a significant portion of divisible profit gets reduced. The surplus is where all the profits of the company reside

Reserve and surplus will be shown under the heading of "Shareholders Fund" in the "Equity & Liability" side of the balance sheet.

Components

Reserve and surplus can be distributed among the following sub-heads:

  • Capital reserves - Generally, earmarked for specific long-term projects. Eg.- writing off capital expenditure.
  • Capital redemption reserves
  • Revaluation reserve
  • Debenture redemption reseve
  • Security premium - When the company issues share at a premium. This can be used for the purposes specified in section 52(2) of the companies act.
  • Surplus in profit and loss statement
  • Other reserves


TaxGyata Team

TaxGyata Team

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