CAF-1 · Chapter 8 · Question 6 of 15
What is the primary purpose of a 'Dividend Equalization Reserve'?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) To ensure that dividends remain stable irrespective of fluctuations in annual earnings.
Explanation
A dividend equalization reserve is a specific reserve created out of retained earnings to ensure that dividends remain stable irrespective of changes in earnings.
More Statement of Changes in Equity MCQs
- Q8A company issues a 10% bonus share to its existing shareholders out of retained earnings. What is the net effect on total equity?
- Q9When an entity discovers a material error from a prior period, how is the correction presented in the statement of changes in equity?
- Q10Which document explicitly presents the reconciliation between the carrying amount of each component of equity at the beginning and end of…
- Q11In the statement of changes in equity, what is the effect of transferring Rs. 20 million from retained earnings to a general reserve?
- Q12A company issues 1 million ordinary shares of Rs. 10 each at a price of Rs. 15 per share. How is the Rs. 5 per share excess recorded?