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

Marlow Co has a year end of 30 June 20X6. Its retained earnings at 30 June 20X6 before any dividend adjustment were $850,000. On 10 June 20X6 the directors declared a dividend of $90,000, payable on 31 July 20X6, which has not yet been recorded. On 5 August 20X6 they declared a further dividend of $60,000. What are the retained earnings that should be reported at 30 June 20X6?

Retained earnings are $760,000. The $90,000 dividend declared in June created a liability at the reporting date and must be deducted from $850,000. The $60,000 dividend declared in August is after the reporting period, so it is only disclosed and not deducted.

  1. A$850,000
  2. B$760,000Correct
  3. C$700,000
  4. D$910,000

Explanation

The $90,000 dividend was declared before the reporting date, so a liability exists and retained earnings reduce: 850,000 - 90,000 = 760,000. The $60,000 declared in August is a non-adjusting item and is disclosed only. Deducting both gives $700,000, which is wrong.

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