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ACCA Applied Knowledge · Financial Accounting · Statement of financial position

Which of the following is correctly classified as a movement in equity rather than an item in profit or loss?

Dividends paid on equity shares are a movement in equity. They are a distribution of profit to owners, so they are debited to retained earnings and shown in the statement of changes in equity. The other items are expenses charged in profit or loss.

  1. ADividends paid on equity sharesCorrect
  2. BInterest paid on redeemable preference shares classified as liabilities
  3. CDepreciation on a revalued building
  4. DDirectors' remuneration

Explanation

Dividends on equity shares are distributions of profit and are shown in the statement of changes in equity, not as an expense. Interest on liability-classified preference shares is a finance cost in profit or loss. Depreciation and directors' pay are expenses.

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