RESERVE AND SURPLUS
Reserve & Surplus Fund |
INTRODUCTION:
As the name implies, "Reserve" refers to something
stored aside for future use, whereas "Surplus" refers to an abundance
of items.
For example, if after all payments, we are left with Rs.
1000 in the current month and we already have Rs. 5000 in previous months'
money in our account, and we intend to spend Rs. 500 from the current month's
available fund of Rs.1000 for some reason.
So, from the current month's fund of Rs.1000, Rs. 500 is set
aside for usage, and the remaining Rs. 500 goes to our surplus fund (i.e., 5000
+ 500 = 5500). The new Surplus fund now stands at Rs. 5500.
This is a very basic example to demonstrate the concepts of
Reserve and Surplus.
UNDERSTAND RESERVE AND SURPLUS IN FINANCIAL TERMS:
At the top of the balance sheet table, the phrases Reserve
and Surplus appear.
The amount of Reserve and Surplus on the balance sheet
reflects or provides a clear picture of a company's financial stability and
strength. What is the company's financial situation like, and is it improving
or not?
What is a Reserve
Fund?
Reserve Fund |
A reserve fund is a highly liquid asset set aside by a
corporation to meet unanticipated as well as well-planned future expenditures
or financial obligations. Reserves always have a credit balance (positive
amount) and might refer to a portion of the shareholders' equity.
If a firm wants to acquire new machinery to ramp up
production, replace outdated machines, upgrade technology, or build up a new
production facility, the company's management must plan and set aside money
from its revenues to carry out these goals.
What is a
Surplus Fund?
Surplus Fund |
A surplus fund is a money that remains accessible to the
firm after all obligations have been met. If the corporation meets all
standards and has additional cash available, the surplus fund grows year after
year. This capital can also be utilized in the future for corporate development
and upgrades, as well as for surviving in difficult economic times.
If, after making all payments and separating the reserve
fund for usage according to the plan, there is still money left over, it is
added to the surplus fund account. Every year, financially sound and stable organizations
increase their surplus account fund by carefully managing inflowing and
outflowing cash in the most effective and efficient manner.
CONCLUSION :
The value of the Reserve and Surplus Fund is now evident to
all our readers. What is the goal of the Reserve and Surplus Fund buildup and
how is it done? How it aids in the completion of specified tasks and the
financial stability of the organization.
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