ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs
Which of the following is a capital reserve, meaning it is not normally available for distribution as dividends?
The share premium account is a capital reserve because it arises from issuing shares above nominal value and cannot normally be distributed as dividends. Retained earnings and a general reserve created from them remain distributable to shareholders.
- ARetained earnings
- BShare premium accountCorrect
- CGeneral reserve created by transfer from retained earnings
- DProfit for the current year
Explanation
Share premium arises when shares are issued above nominal value and is a non-distributable (capital) reserve. Retained earnings and a general reserve transferred from them remain distributable. Current year profit forms part of retained earnings.
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