Retained Profits

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in AAT member discussion
If you wanted to capitalise retained profits, how would you treat this in the accounts.

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    Why do you want to capitalise the profits, can you give more details?

    Annette
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    You would do it to 'jazz' the accounts up for potentially investors.

    Also the investor may request this because they may not want the retained profits distributed by way of dividend to other directors.

    I'm not exactly sure on the treatment but I assume you would move it from "equity" to "intangable fixed assets" (maybe even a prefferential share premium a/c) and supply a note to the accounts.

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    That's why I needed more details!!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    Honda is not saying he/she wants to capitalise retained profits though. So what further details can he/she give you?

    He/she just wants to know what the treatment in the accounts would be :wink:

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    I had a client who issued more shares, and the double entry was

    CR shares issued
    DR capitalisation of reserves

    It went in the profit and loss note, profit bfwd, plus profit for year, less capitalisation of reserves.

    Is this what you meant, or have I got the wrong idea entirely?!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    Sorry the reason I was asking about more details was because of the possible legal issues etc.

    I hadn't clicked that it was purely theoretical.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    Thanks for the advice.
    I now believe that depending what the M & A say that you can increase the share capital and the amount of issued shares, thus turning retained profits into capital.This apparently looks better when using the company to secure any future business.

    Honda
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    Can I ask if you work for a private limited or a public limited company?
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    What's M & A ?

    Ste
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    Memorandum and Articles of Association?
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    Aaaah yes ! Not one to imply my thickness just that i'd never heard of that abbreviation! :lol:

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    Me neither, but I was reading ours on Friday (not really a pager turner!), so it was within grasp of my grey matter.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    Reply to bluewednesday.

    This was a question that was raised by a friend, I do not know what sort of company it was in relation to, if any and I could not answer it, I am not accounting at present but this may come up sometime in a future role.

    Honda
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    In financial terms M&A normally stands for Mergers and Acquisitions and memorandum and articles of association are abbreviated to mem and arts.

    Lots of confusion all round I think!

    Claudia
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits

    Just thought I'd comment for no particular reason.

    Its known as a bonus share issue.

    http://www.indiainfoline.com/lega/lico/gufo.html

    I can't see why it would make the accounts look better to potential investors - with a higher capital amount and less retained profits anyone coming into the company would:

    a) not be able to be issued that capital as a dividend.
    b) any money they put in as capital would be more diluted.

    as far as I understand.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Retained Profits
    lincs wrote:

    a) not be able to be issued that capital as a dividend.

    Isn't that exactly why you would want to capitalise retained profits? Think of it this way, if you buy a company with lots of retained profits and lots of shareholds.

    You are buying those "retained profits" so you wouldn't want them being distributed to other shareholders would you?
    lincs wrote:
    b) any money they put in as capital would be more diluted.

    Any other monies introduced can be spilt to an individual directors account.

    Regards

    Dean

    as far as I understand.

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