ACCA Applied Knowledge · Financial Accounting · Ratios
Kobe Co reported profit after tax of $900,000 and paid ordinary dividends of $300,000. Which of the following is the dividend cover?
Dividend cover is 3 times. It is calculated as profit available to ordinary shareholders of $900,000 divided by ordinary dividends of $300,000. Inverting the calculation gives 0.33, which is wrong because that would show the payout proportion, not cover.
- A3 timesCorrect
- B0.33 times
- C2 times
- D1.5 times
Explanation
Dividend cover = earnings attributable to ordinary shareholders / ordinary dividends = 900,000 / 300,000 = 3 times. The 0.33 option inverts the ratio.
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