Various components of reserves and surplus are:

(i) Capital reserve which represents unrealised revaluation profit on property, plant and equipment and intangible assets. This also termed as Revaluation Reserve.

(ii) Debenture Redemption reserve which represents profit set aside for re­demption of debentures.

(iii) Capital redemption reserve which represents utilised reserve for redemp­tion of preference share capital or buy back of equity shares out of reserve.


(iv) Tax reserve which is special purpose reserve created to earn tax benefit. For example, reserve for shipping business – this is created under section 33AC of the Income Tax Act. This section requires a shipping company to create special reserve out of profit to get tax benefit up to 50% of the business profit.

(v) General Reserve which represent undistributed profit reported in the Statement of Income (Profit and Loss Account) not transferred to any special reserve.

Check the details of Reserves and Surplus of BHEL:

Example 1:


Use the equity information of BHEL as at 31.3.2007 and 31.3.2008 and prepare a Statement of Changes in Equity. You are required to consider the following extracts of the Appropriation Section of the Profit and Loss Account of the company. Go to CD Rom for full text of the annual report of the company S.

Dividend paid amount in the Statement Cash Flow is short of proposed dividend of the earlier year and interim dividend of the current year. This difference should be shown as Dividend Payable under Current Liabilities as per IFRSs.


Take into consideration that IFRSs do not allow to recognise proposed dividend. It is to be accounted for only after the dividend is announced by the body authorised to announce or declare dividend. In India, final dividend is proposed by the Board of Directors after the end of accounting period and it is approved and declared in the annual general meeting of the shareholders. Translate the above information into a statement of changes in Equity.


Example 2:


On the basis of the following information prepare Statement of Changes in Equity (Figures are in Rs. crores):


Opening Balances – Equity Share Capital (Rs.10 face value) 100


General Reserve 14000

Revaluation Reserve (Property, Plant and Equipment) 200

Fair Value Reserve (Available for Sale Financial Assets) 50

During 2008:


New Issue – 1,00,00,000 equity shares of Rs.10 each for Rs.100

Impairment loss of the plant 10 on which there was revaluation surplus earlier 20

Fair value loss on AFS financial assets 30

AFS financial assets sold on which fair value gain was 40.


Profit for the year 2000.

Dividend including distribution tax of 2007 paid 212

After 31.12.2008:

Proposed Dividend inclusive of dividend distribution tax 312.


a. Impairment loss of an asset can be adjusted against revaluation surplus of that asset.

b. Reclassification adjustment indicates transfer of fair value reserve that relates to an AFS financial asset which is sold. This is transfer from fair value reserve to income statement.


c. Proposed dividend of 2008 is not accounted for under IFRSs.