Earned surplus refers to the cumulative profits that a corporation has retained since its establishment. This surplus may also encompass portions of the profits from other corporations that have been acquired, merged, or consolidated into the corporation. Essentially, it represents the reinvested earnings that contribute to the company's financial health and growth.
Earned surplus is primarily used in corporate finance and accounting. It plays a significant role in determining a corporation's financial stability and capacity for growth. Legal practitioners may encounter this term in various contexts, including:
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Here are a couple of examples of abatement:
Example 1: A corporation has retained $500,000 in profits over five years. If it acquires another company with an additional $200,000 in retained earnings, the total earned surplus becomes $700,000.
(hypothetical example)
| Term | Definition | Key Differences |
|---|---|---|
| Earned Surplus | Cumulative retained profits of a corporation. | Includes profits from acquisitions and consolidations. |
| Retained Earnings | Profits retained in the business after dividends. | Does not typically include profits from acquired entities. |
If you are involved in a corporate merger or acquisition, understanding earned surplus is crucial. Consider the following steps:
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| Attribute | Details |
|---|---|
| Definition | Cumulative profits retained by a corporation. |
| Legal Context | Corporate finance, mergers, and acquisitions. |
| Importance | Indicates financial health and growth potential. |
Earned surplus includes retained earnings and may also encompass profits from acquired companies, while retained earnings typically refer only to the profits retained within the company.