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  Withdrawing Equity

Introduction to Withdrawing Equity

Companies are legally obliged to differentiate, on the statement of financial position, among that part of the equity of shareholders which may be withdrawn and that part that may not. The withdrawable part contains profits taking place from trading and from the disposal of non-current assets. It is presented in the statement of financial position through revenue reserves.

It is significant to appreciate that the total of revenue reserves that are appearing in the statement of financial position is seldom the total of all trading profits and profits on disposals of non-current assets produced through the company. This total will generally have been decreased by at least one of the following three factors:

? Corporation tax paid on those profits

? Any dividends paid

? Any losses from the trading and disposal of non-current assets.

The non-withdrawable part contains share capital plus profits that are arising from shareholders buying shares in the company and from rising revaluations of assets still held. It is presented in the statement of financial position through share capital and capital reserves.

Figure below, depicts the significant division among the part of the equity of shareholders which can be withdrawn as a dividend and the part that cannot.

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The law does not identify how large the non-withdrawable part of a specific company's shareholders' equity should be. Though, when seeking to impress prospective lenders and credit suppliers, the larger this part, the good. Those that are considering doing business along with the company have to be able to see from the statement of company of financial position how large it is.

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