11 September 2012
Reserves and surplus At the end of an accounting period the company may decide to transfer part of the profits to a reserve and retain the balance in the profit and loss account. The reserve created out of profits transferred from profit and loss account is called general reserve. The balance in the profit and loss account is called a surplus and will be shown under this head in the balance sheet. The company can use the general reserve for various purposes including issue of bonus shares to shareholders and payment of dividend when profits are insufficient. The premium received when shares are issued at a premium to the face value is shown under the head reserves and surplus.
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