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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA LW Exams › reserves
How many distributable and undistributable reserves are there? Please explain the difference between distributable and undistributable reserves?
Distributable reserves:
1) Retained Earnings
Undistributable reserves:
1) Share premium reserve
2) Revaluation surplus reserve
3) Share capital reserve
Are there any other distributable and undistributable reserves that I am missing out then please mention them?
‘How many distributable and undistributable reserves are there?’
A strange question and the simple answer is … there is no definitive number for either category
Although the titles ‘ Revenue Reserve’, ‘Retained Earnings’ and, less common, ‘Profit and loss Reserve’ are seen, there is no limit to the titles that could be given to a reserve that is comprised of distributable profits. If you wanted to call your distributable profits ‘Game Reserve’ or ‘First Reserve’ or even ‘Alice in Wonderland Reserve’ that’s fine
For undistributable reserves, there is a bit more limitation here.. You have correctly identified Share Premium Account (incidentally, not share premium reserve) and Revaluation Reserve. But Share Capital is not a reserve
By statutory definition undistributable reserves are the Share Premium Account, the Capital Redemption Reserve, any accumulated unrealised profits after deducting any accumulated unrealised losses and … any other reserve specified in the company’s constitution as being undistributable
That one about the unrealised profits is more extensively defined but, for our purposes, what I’ve given is sufficient
Another, not uncommon, reserve is Plant Replacement Reserve. What’s that? Distributable or not? Well, it’s a distributable reserve (unless the constitution states that it isn’t!)
Clearer?