Reserve is created by debiting the P/L account for particular purpose as per provision of various law. However surplus is the residual amount of P/L account after all the adjustments and appropriations.
Reserve & surplus amounts retained in the business and not distributed to owners. Reserves can be:
* Profits made and not passed on to owners. These are some times known as retained earnings. * Capital reserves which can not be passed on to owners and represent the perceived increase in valuation of some fixed assets.