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

Opening retained earnings of Kappa Co were $320,000. Profit for the year was $140,000. Ordinary dividends of $50,000 were paid during the year, and a revaluation surplus of $60,000 arose on land. What is closing retained earnings?

Closing retained earnings are $410,000: opening $320,000 plus profit $140,000 less dividends paid $50,000. The $60,000 revaluation surplus is recorded in the revaluation reserve through other comprehensive income, so it does not affect retained earnings.

  1. A$410,000Correct
  2. B$470,000
  3. C$400,000
  4. D$510,000

Explanation

Retained earnings = 320,000 + 140,000 - 50,000 = $410,000. The revaluation surplus goes to the revaluation reserve via other comprehensive income, not retained earnings. Adding it would wrongly give $470,000.

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