Reserve and Surplus are shown under Shareholders' Funds in the balance sheet of a company.
As per Schedule III of the Companies Act, 2013, the balance sheet format requires Reserves and Surplus to be presented under Shareholders' Funds (also called Equity) on the Liabilities side of the balance sheet.
The structure is:
Shareholders' Funds consists of:
- Share Capital
- Reserves and Surplus
This is because reserves represent accumulated profits that belong to the shareholders and form part of the owners' equity in the company. They are neither liabilities to outsiders nor assets of the company, but rather represent the internal accumulation of profits that strengthen the shareholders' stake in the business.
Options like Non-current Liabilities (debts), Current Assets (resources owned), or Sundry Assets are incorrect as reserves represent owners' funds, not borrowed funds or company assets.