Can the retained earnings figure in the balance sheet be used as the distributable surplus?
No. A company’s retained earnings and its distributable surplus will not necessarily be the same. For example, the definition of ‘net assets’ in the formula for the calculation of a private company’s distributable surplus provides that only present legal obligations and certain provisions are included in the calculation. In contrast, a company may choose to include additional provisions for accounting purposes. Also, a company may record an unrealised gain as an increase in its total assets but then transfer it to an asset revaluation reserve rather than to its profit and loss account. (See subsection 109Y(2).
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