Reserve
A reserve is a component of equity other than share capital, such as retained earnings, share premium or revaluation surplus. Retained earnings accumulate profits less distributions and other relevant movements; share premium arises from issue proceeds above nominal value. The statement of changes in equity reconciles the components separately. Whether an amount is distributable depends on applicable law. Reserves do not themselves identify cash available to make a distribution to owners.
Worked example
A revaluation increase may be credited to a revaluation surplus within equity.
Common mistake
A reserve is not necessarily cash set aside, and not every reserve arises from profits or is distributable.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: Equity reserve