Why Reserves and Surplus are shown on the liabilities side of
the balance sheet.? justify your answer.
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Answer Posted / viswanathan
Reserves & surplus fund is created out of profits that are to be shared between the partners or share holders . Therefore fund created out of profit is a liability to the company. Reserves & Surplus fund is created to meet future contingencies. If the contingency does not arise as expected this fund can be distributed among partners or distributed as dividends among shareholders. It can be used for issuing bonus shares. The decision how to make use of the funds will be done by the partners or in the case of a company in the AGM.
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