ExpertMedium2 marksMultiple Choice
ACCA · Question 14 · Capital and the financing of companies
Section A
How are 'distributable profits' defined for the purpose of a private company declaring a lawful dividend?
Section A
How are 'distributable profits' defined for the purpose of a private company declaring a lawful dividend?
Answer options:
A.
Accumulated, realised profits less accumulated, realised losses.
B.
Total assets less total liabilities.
C.
Accumulated, realised and unrealised profits less accumulated, realised losses.
D.
The net profit for the current financial year only.
How to approach this question
Identify the strict accounting definition used by the Companies Act to ensure capital maintenance when paying dividends.
Full Answer
A.Accumulated, realised profits less accumulated, realised losses.✓ Correct
Under the Companies Act 2006, a company may only make a distribution out of profits available for the purpose. These are defined as accumulated, realised profits (so far as not previously utilized) less accumulated, realised losses (so far as not previously written off).
Common mistakes
Including unrealised profits (like property revaluations) in the calculation for a private company.
Practice the full ACCA LW — Corporate and Business Law Practice Exam 6
60 questions · hints · full answers · grading
More questions from this exam
Q01Section A
In the context of the English legal system, which of the following statements accurate...MediumQ02Section A
Which of the following courts binds the High Court but is NOT bound by its own previou...MediumQ03Section A
In the context of the law of contract, which TWO of the following statements regarding...MediumQ04Section A
Zephyr Ltd, a wind turbine manufacturer, promises to pay a £5,000 bonus to an independ...HardQ05Section A
In the tort of negligence, which of the following best describes the 'Caparo test' for...Medium