(b) Reserves & Surplus (R&S):
Given below is a sample balance sheet:
(b) Reserves & Surplus:
As the company makes profits, they are moved each year from the P/L statement into the balance sheet under the head ‘Reserves & Surplus’. Thus, this is also shareholder’s money, which they chose to keep in the company and reinvest in the business. While equity may be called contributed capital, reserves and surplus is called retained capital. Apart from the reserves created out of retained profits, the balance sheet may show other reserves such as share premium reserve (collected when shares are issued as premium to face value) or a revaluation reserve, which are not created out of the profits earned.
In the above example, we have R&S = Rs. 28.
