Skip to content

ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law

Brindle Co's directors want to pay a dividend. The company has accumulated realised profits of $500,000 and accumulated realised losses of $120,000. It also holds an unrealised revaluation surplus of $200,000 on land. Applying the general rule for private companies, what is the maximum distribution?

The maximum distribution is $380,000. Only accumulated realised profits less accumulated realised losses may be distributed, giving $500,000 minus $120,000. The $200,000 revaluation surplus is unrealised, so it is excluded from distributable profits until the asset is realised.

  1. A$380,000Correct
  2. B$500,000
  3. C$580,000
  4. D$700,000

Explanation

Distributable profit equals accumulated realised profits less accumulated realised losses: $500,000 - $120,000 = $380,000. Unrealised revaluation surplus is not a realised profit so it is excluded; adding it gives $580,000, which is wrong. $500,000 ignores the losses.

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.

Practise Capital maintenance and dividend lawFree diagnostic mock

More Capital maintenance and dividend law questions