ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law
Birch Ltd, a private company, has accumulated realised profits of 500,000, accumulated realised losses of 180,000 and an unrealised revaluation surplus on land of 200,000. Using the usual private company rule, what is the maximum lawful distribution?
The maximum lawful distribution is 320,000. This is realised profits of 500,000 less realised losses of 180,000. The 200,000 revaluation surplus is unrealised and therefore cannot be distributed to shareholders.
- A320,000Correct
- B520,000
- C700,000
Explanation
Distributable profit is accumulated realised profits less accumulated realised losses: 500,000 - 180,000 = 320,000. The 200,000 revaluation surplus is unrealised, so it is excluded. Adding it gives 520,000, which wrongly treats unrealised gains as distributable.
Did you get it right without looking?
One question tells you little. A timed set on Capital maintenance and dividend law shows your real accuracy, how long you take and where you lose marks.
More Capital maintenance and dividend law questions
- Orchid Co paid a dividend to shareholders when it had insufficient distributable profits. Shareholder Priya received $5,000 and honestly bel…
- Eskal Ltd paid a dividend that was later found to breach the distribution rules. Which statement about the effect of the members' approval o…
- Brightwell Co sold shares with a nominal value of 1 each for 1.60 each. Which of the following correctly describes the treatment of the 0.60…
- Marlow Ltd's directors discover after paying a dividend that the interim accounts used were misleading and the company lacked distributable …
- Dune Ltd paid a dividend to its shareholders when its accounts showed no distributable profits. One shareholder, Priya, knew this when she r…
- Dunmore Ltd, a private company, proposes to reduce its share capital and return the surplus to shareholders. Its articles do not prohibit re…