A company’s share capital will remain fixed from year to year, unless new shares are issued. Reserves are difficult to define neatly since different reserves arise for different reasons, but it follows from the above that:
Reserves = net assets – share capital
So the total amount of reserves in a company varies, according to changes in the net assets of the business.
A distinction should be made between:
- Statutory reserves, which are reserves which a company is required to set up by law, e.g., the revaluation reserve, and which are not available for the distribution of dividends.
- Non statutory reserves, which are reserves consisting of profits which are distributable dividends, if the company so wishes.