I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

Statutory reserves, which are reserves which a company is required to set up by law, and which 

are not available for the distribution of dividends. 

(b) 

Non-statutory reserves, which are reserves consisting of profits which are distributable as 

dividends, if the company so wishes. 

Statutory reserves are capital reserves (share premium, revaluation) and non-statutory reserves are 

revenue reserves. 

We are concerned here with the latter type, which the company managers may choose to set up. These 

may have a specific purpose (eg plant and machinery replacement reserve) or not (eg general reserve). 

The creation of these reserves usually indicates a general intention not to distribute the profits involved at 

any future date, although legally any such reserves, being non-statutory, remain available for the 

payment of dividends. 

Profits are transferred to these reserves by making an appropriation out of profits, usually profits for the 

year. Typically, you might come across the following. 

 

 

$       

 

$      

Profit after taxation 

 

 

100,000

Appropriations of profit 

 

 Dividend 

 

60,000 

  Transfer to general reserve 

 

10,000 

 

    70,000

Retained earnings for the year 

 

   

30,000

Retained earnings b/f 

 

 

250,000

Retained earnings c/f 

 

 

280,000

3.3.1 Dividends