Which type of surplus can be added back to profits that are distributable?

The type of surplus that can be added back to profits that are distributable is a revaluation surplus. A revaluation surplus arises when an asset's carrying amount is adjusted upwards following a revaluation. This increase in value reflects the improved worth of the asset; however, it does not translate into cash flow or immediate availability for distribution as profit.

In many reporting frameworks, specifically under International Financial Reporting Standards (IFRS), revaluation surplus is included in other comprehensive income and is not considered as distributable profit until the asset is sold and the gains are realized. However, it can be added back when determining the total equity that a company may have available for distribution, assuming that there are adequate realised profits to offset against any distributions.

Realised gains, on the other hand, consist of actual gains achieved from the sale of assets and can directly impact distributable profits since they represent actual cash inflows. Operating profits, while they represent the profitability of the company’s day-to-day operations, are not specifically a surplus type but rather measures performance. Unrealised losses, conversely, decrease the value and do not contribute to distributable profits.

Thus, the revaluation surplus is the correct answer because it is a type of surplus that, despite its unrealized