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ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs

At 1 January, Nile Co had retained earnings of $640,000. Profit for the year was $210,000. It issued no shares in the year. It paid an ordinary interim dividend of $50,000 and a preference dividend of $30,000 on irredeemable preference shares classified as equity. A final ordinary dividend of $70,000 was declared in January after the year end. What are the closing retained earnings?

Closing retained earnings are $770,000: opening $640,000 plus profit $210,000, less the $50,000 ordinary interim and $30,000 equity-classified preference dividends. The $70,000 final dividend declared after the year end is not deducted because it is a non-adjusting event.

  1. A$770,000Correct
  2. B$700,000
  3. C$840,000
  4. D$850,000

Explanation

Closing = 640,000 + 210,000 − 50,000 − 30,000 = 770,000. The final dividend declared after the year end is excluded. $700,000 results from also deducting the $70,000 final dividend. $840,000 omits the preference dividend and interim dividend... in effect, $850,000 deducts only the preference dividend wrongly.

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