Non-Distributable Reserves for Dividends

Steps:

• Classify reserves as distributable (revenue-based, like retained earnings) or non-distributable (capital-based, like share premium).
• Review company law: only realized profits from revenue reserves fund dividends.
• Identify option 1 (general reserve) and 2 (retained earnings) as distributable.
• Identify option 3 (capital redemption reserve) and 4 (revaluation reserve) as non-distributable, protected for capital maintenance.

Why D is correct:

• Under the Companies Act, capital redemption and revaluation reserves maintain capital integrity and cannot distribute as dividends.

Why the others are wrong:

• A includes 1 and 2, which are revenue reserves available for dividends.
• B omits 4, a non-distributable revaluation reserve.
• C includes 2, a distributable retained earnings reserve.

Final answer: D