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Company reserves, profits retained in the business and set aside for specified purposes. The Companies Act requires a distinction to be made in accounts between revenue and capital reserves. The former, at the discretion of the board of directors, can be distributed as dividends to equity shareholders, but the latter may not. Capital reserves are created when new shares are issued at a premium over par or when the book value of existing assets is revalued to bring it into line with replacement costs or when capital gains are made; in each case, the whole of the surplus is transferred to the capital reserve account. These reserves may later be transformed into issued capital ( capitalization).

Revenue reserves are created by transfers of undistributed profits into special accounts, e.g. asset replacement reserves or general reserves, out of which a dividend may be paid in a later year in which the company makes a loss. The bulk of company reserves are not kept in cash, but are invariably invested in the business (ploughed back) or outside. In all cases, however, the sums in reserve accounts are always matched by assets. Tax reserves and the balance on the profit and loss account at any time are also classified as revenue reserves. A taxation equalization reserve may include tax allowances accruing under accelerated depreciation (c£> capital allowances), i.e. where depreciation for tax purposes is faster than depreciation written into the company accounts and future tax liabilities on current revenue. The decision on how much profit to retain in the business and how much to distribute in dividends is the responsibility of the board of directors. retained earnings.

Company taxation. corporation tax.

Comparative advantage david ricardo for the law of comparative costs; international trade.

Comparative cost international trade; ricardo, d.

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