Dividend Payment

Hey mate,
I`ve found a question in the F4 BPP exam kit that I think has an incorrect answer to it.
Here`s the question:
Dee and Eff are major shareholders in, and the directors of, Fan Co. For the year ended 30 April 20X8 Fan
Cos’s financial statements showed a loss of $2,000 for the year and no profits were carried forward. For the
year ended 30 April 20X9 Fan Co made a profit of $3,000. Also, due to a revaluation, the value of its land and
buildings increased by $5,000. As a consequence, Dee and Eff recommended, and the shareholders
approved, the payment of $4,000 in dividends.
Required
(a) Explain the legality of the dividend payment.

The answer provided in the book is:
Only accumulated profit is a distributable reserve out of which dividend’s may be paid. In Fan Co’s case the
total is $3,000 for the year and no profits were brought forward from previous years. The profit on
revaluation of land and buildings is credited to the revaluation reserve, not to the profit and loss reserve and
is not distributable.
For the year in question, $4,000 was paid as a dividend. The payment would only be legal if the company
had accumulated realised profits equal to or greater than $4,000. The company only had $3,000 and
therefore the payment is illegal.

I think the correct answer is that since the rule is that we use accumulated profits less accumulated losses to find distributable profit, the company needed to have accumulated realised profits of 6000 to be able to pay the 4000 dividend due to the 2000 loss suffered in the first year.

I`d love for you to clear this up for me

Cheers!

P.S love the work you lot do