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ACCA Applied Knowledge · Financial Accounting · Events after the reporting period

Delta Co has 4,000,000 $1 ordinary shares in issue at 31 December 20X5. Retained earnings before any dividend are $3,500,000. On 15 November 20X5 it declared an interim dividend of $0.05 per share, paid on 15 December 20X5. On 25 January 20X6 it declared a final dividend of $0.10 per share. What is the retained earnings figure in the statement of financial position at 31 December 20X5, assuming profit for the year is already included in the $3,500,000?

Retained earnings are $3,300,000. Only the interim dividend of $200,000 (4,000,000 shares × $0.05) is deducted from $3,500,000, because it was declared before the year end. The $0.10 final dividend was declared in January 20X6, so it is only disclosed.

  1. A$3,100,000
  2. B$3,300,000Correct
  3. C$3,500,000
  4. D$3,200,000

Explanation

Only the interim dividend, declared and paid before the year end, is deducted: 4,000,000 × $0.05 = $200,000, giving $3,500,000 − $200,000 = $3,300,000. The final dividend of $400,000 was declared after the year end and is not deducted. Deducting both gives $3,100,000, which is wrong.

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