Under CA06, which reserves are typically non-distributable?

Under CA06, which reserves are typically non-distributable?

• A. Retained earnings
• B. Share premium and revaluation reserve
• C. General reserve
• D. Cash in bank

Answer: (B)

In this area, the distinction is between capital-related reserves and reserves that arise from profits. The share premium account is a capital reserve created when shares are issued above their nominal value, and the revaluation reserve reflects increases in asset values from revaluation. Both are not part of profits available for distribution, so they’re typically non-distributable. Retained earnings come from profits kept in the business and, subject to solvency rules, can be paid out as dividends. The general reserve is built from profits as well and is generally available for distribution once there are sufficient distributable profits. Cash in bank is an asset, not a reserve, so it isn’t a distributable reserve in itself. Therefore, the reserves typically non-distributable are the share premium and the revaluation reserve.

In this area, the distinction is between capital-related reserves and reserves that arise from profits. The share premium account is a capital reserve created when shares are issued above their nominal value, and the revaluation reserve reflects increases in asset values from revaluation. Both are not part of profits available for distribution, so they’re typically non-distributable. Retained earnings come from profits kept in the business and, subject to solvency rules, can be paid out as dividends. The general reserve is built from profits as well and is generally available for distribution once there are sufficient distributable profits. Cash in bank is an asset, not a reserve, so it isn’t a distributable reserve in itself. Therefore, the reserves typically non-distributable are the share premium and the revaluation reserve.