AccountingStudent resources

Why a company make an appropriation of retained earnings?

Appropriation of retained earnings are made for:

–       dividends, cash or shares

–       transfer to other reserves

May also like to consider how increases in retained earnings occur:

–       earning of profit

–       transfers from reserves

–       recognition of actuarial gains and losses under IFRS 4 [note here that in all other cases amounts recognized directly in equity are taken to reserve accounts rather than to retained earnings]

Explain how and why Forfeited Shares Reserve would be created.

 

The forfeited shares reserve can only have arisen if shareholders failed to pay a call made on their shares by the company. Corporate legislation or the company’s own rules must then allow the directors to forfeit those shares for non-payment of the call and to retain any monies already paid. Forfeiture will result in the cancellation of the shares, the elimination of the calls in arrears balance and the transfer of any monies by the shareholders to the reserve account titled ‘forfeited shares reserve’.

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