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For this question, I use both ordinary share and reserve as the part of equity. However, the answer is excluded the reserve.
May I know when the reserve should be included or excluded in the part of equity?
Thank you.
As I explain in my free lectures, if we are using book values from the SOFP then equity is share capital plus reserves.
If we are using market values (which is, of course, much more meaningful) then we do not add reserves – they are effectively included already in the market value. The most obvious reason for the market value being higher than the nominal value is because the company has been making profits.
Do watch the lectures – they are a complete free course for Paper FM and cover everything needed to be able to pass the exam well 🙂
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