Understanding Reserve And Surplus Fund



Reserve & Surplus
Reserve & Surplus Fund


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.


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
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If a firm wants to acquire new machinery to ramp up production, replace outdated machines, upgrade technology, or build up a new production facility, the company's management must plan and set aside money from its revenues to carry out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
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.


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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