Which of the following statements relating to an asset revaluation surplus ...Which of the following statements relating to an asset revaluation surplus account is correct?Question 2Answera.An entity is able to use this surplus for the payment of future dividends.b.An entity can transfer the surplus to current period profit or loss when the asset is disposed of.c.An entity is not able to use this surplus for the payment of future dividends.d.An entity is not able to transfer this surplus to any other reserve account.
Question
Which of the following statements relating to an asset revaluation surplus ...Which of the following statements relating to an asset revaluation surplus account is correct?Question 2Answera.An entity is able to use this surplus for the payment of future dividends.b.An entity can transfer the surplus to current period profit or loss when the asset is disposed of.c.An entity is not able to use this surplus for the payment of future dividends.d.An entity is not able to transfer this surplus to any other reserve account.
Solution 1
The correct answer is c. An entity is not able to use this surplus for the payment of future dividends.
Here's why: An asset revaluation surplus account is used to record increases in the fair value of a company's assets, typically property, plant, and equipment. This surplus is not realized until the asset is sold. Therefore, it is not available for distribution as dividends. Dividends are typically paid out of retained earnings, which represent the cumulative net income of the company that is available for distribution to its shareholders.
Solution 2
The correct answer is c. An entity is not able to use this surplus for the payment of future dividends.
Here's why: An asset revaluation surplus account is used to record increases in the fair value of a company's assets, typically property, plant, and equipment. This surplus is not realized until the asset is sold. Therefore, it is not available for distribution as dividends. Dividends are typically paid out of retained earnings, which represent the accumulated net income of the company that has not been distributed to shareholders.
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