FIN.21:4.1 - Separate capital, profit and cash before naming a surplus

Retained profit is the part of earnings kept in the corporation instead of distributed to owners. It can finance receivables, inventory or equipment, so it need not remain in a bank account. Conversely, cash from a new loan or asset sale can increase the bank balance without being recurring profit. Identify the corporation that can make the distribution, the interests entitled to receive it and the actual cash source.

Use FIN.2 for the dated available cash and FIN.12 for restrictions. Recover the applicable distributability and solvency conditions, authority and taxes from their responsible sources. Accounting reserves, contractual payout capacity and usable bank cash answer different questions; the smallest relevant limit can constrain the proposed action, but a simple minimum is valid only when the limits refer to the same amount and date and do not themselves change with the payout.

A holding company cannot distribute a subsidiary’s cash merely because consolidated accounts show it. Establish the subsidiary-to-parent transfer, its conditions and the parent’s own payments before relying on the money. Likewise, cash pledged or reserved for creditors does not become available to owners because management calls it excess. FDM.1–2 supplies the actual parties, positions and transfer relations when these are unclear.