A company is considering declaring a dividend. Under the Companies Act 2006, dividends can only be paid out of 'distributable profits'. How are distributable profits defined?

Answer options:

Accumulated, realised profits less accumulated, realised losses.

Accumulated, realised profits less accumulated, unrealised losses.

Total assets minus total liabilities.

Net profit for the current financial year only.

How to approach this question

Identify the statutory formula for calculating profits available for distribution.

Full Answer

A.Accumulated, realised profits less accumulated, realised losses.✓ Correct

Section 830 of the Companies Act 2006 defines distributable profits as a company's accumulated, realised profits (so far as not previously utilised by distribution or capitalisation) less its accumulated, realised losses (so far as not previously written off in a reduction or reorganisation of capital).

Common mistakes

Including unrealised profits (like property revaluations) in the calculation for dividends.

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