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reserves

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA LW Exams › reserves

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by MikeLittle.
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  • January 6, 2022 at 8:04 pm #645417
    Imran.Sajjad
    Member
    • Topics: 24
    • Replies: 7
    • ☆

    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?

    January 13, 2022 at 9:43 am #645826
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22709
    • ☆☆☆☆☆

    ‘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?

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