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Question 9.Act.2: Bio-tech Ltd, a private limited company, started trading in ...

Bio-tech Ltd, a private limited company, started trading in Year 1 and made a trading profit of £200,000 in this year. In Year 2, the business made a trading loss of £150,000 but made a profit on the sale of its office buildings of £30,000. Other non-current assets were revalued during the year, leading to a revaluation gain of £60,000. Assuming that no dividend was paid in Year 1, what is the maximum dividend that could be paid by Bio-tech Ltd in Year 2?

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The revaluation gain, which is unrealised profit, cannot be taken into account when deciding the maximum dividend. This maximum is calculated as follows:

£
Trading profit Year 1 200,000
Profit on sale of non-current asset Year 2 \underline{30,000}
230,000
Trading loss Year 2 \underline{(150,000)}
Maximum amount available for distribution \underline{80,000}

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