List any five items that are shown under Reserves and Surplus
CBSE Class 12 Accountancy - Financial Statements of a Company
3
Question
List any five items that are shown under Reserves and Surplus.
Answer
The following are the five items that are shown under Reserves and Surplus:
Key Points to Remember
- Reserves and Surplus is a sub-head under Shareholders' Funds in the Balance Sheet
- Capital Reserve is created from capital profits, not from normal business operations
- Capital Redemption Reserve is created when preference shares are redeemed out of profits
- Debenture Redemption Reserve is created to strengthen the financial position for redemption of debentures
- Securities Premium is the amount received over and above the face value of shares
Understanding Reserves and Surplus
Types of Reserves:
1. Revenue Reserves:
Created out of revenue profits from normal business operations. Examples include General Reserve, Dividend Equalization Reserve, etc.
2. Capital Reserves:
Created out of capital profits which are not earned from regular business activities. Examples include Premium on issue of shares/debentures, Profit on sale of fixed assets, etc.
3. Statutory Reserves:
Created as per the requirements of law. For example, banks must transfer a certain percentage of profits to reserve funds as per Banking Regulation Act.
Important Note:
Reserves and Surplus form a crucial part of the company's net worth and represent accumulated profits and other surpluses kept aside for meeting future contingencies or for expanding business operations.