Draft statement of financial position: Ordinary share capital 900,000; Share premium 80,000; General reserve 96,000; Retained earnings (opening) 230,000; Profit for year 145,000. What is the maximum dividend the company can declare?

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SSC Financial and Cost Accounting P-1 QUESTION #6145

Question 1

Draft statement of financial position: Ordinary share capital $900,000; Share premium $80,000; General reserve $96,000; Retained earnings (opening) $230,000; Profit for year $145,000. What is the maximum dividend the company can declare?

$145,000
$375,000
$471,000✔️
$551,000

Correct Answer Explanation

Option C ($471,000) is correct.

Dividends can only be paid from distributable (revenue) reserves:

Retained earnings: $230,000
Profit for year: $145,000
General reserve: $96,000

Total = $471,000

Share premium ($80,000) is a capital reserve — not distributable.

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