Maximum Distributable Reserves for Additional Dividend

Steps:

• Opening distributable reserves equal general reserve of $50,000 (share premium and capital not distributable).
• Add profit for the year: $50,000 +$800,000 = $850,000 total before appropriations.
• Deduct interim dividend: 500,000 shares × $0.02 =$10,000; $850,000 -$10,000 = $840,000.
• Transfer of $20,000 to general reserve reclassifies within distributable equity, so total remains$840,000.
• Maximum additional dividend per share: $840,000 ÷ 500,000 =$1.68.

Why C is correct:

• C matches $1.68, reflecting total distributable reserves (revenue reserves + profit - paid dividend) per accounting standards on dividend restrictions.

Why the others are wrong:

• A ignores opening reserves and interim dividend, overstating availability.
• B subtracts the transfer as a reduction, but transfers within equity do not decrease distributable amount.
• D includes opening reserves but wrongly deducts transfer, understating by $20,000.

Final answer: C