Examkin

Question

Difficulty: Very hardProfit and Loss Appropriation Account and Dividend Calculation

The following trial balance extract was taken from the books of Omolola Plc as at 31st December 2025:

Account DetailsAmount (₦)
Retained profit (1st January 2025)45,00045,000
Net profit for the year ended 31st December 2025180,000180,000
8%8\% Preference Share Capital (₦1 nominal value)200,000200,000
Issued Ordinary Share Capital (₦1 nominal value)500,000500,000

Additional Information:
1. Authorized share capital consists of 800,000800,000 ordinary shares of ₦1 each and 200,000200,000 preference shares of ₦1 each.
2. The directors recommended a transfer of 10%10\% of the current year's net profit to General Reserve.
3. An interim dividend of 5%5\% was paid on ordinary shares during the year.
4. Preference dividend for the year is to be fully provided for, and a final dividend of 8%8\% is proposed on ordinary shares.

What is the retained profit balance carried forward to the next accounting period?

Answer: 126000 ₦

Answer

The retained profit balance carried forward to the next accounting period is ₦126,000.
The retained profit carried forward to the next period is determined by taking the total profit available (retained profit brought forward of ₦45,000 plus net profit for the year of ₦180,000 = ₦225,000) and deducting total appropriations: general reserve transfer (₦18,000), preference share dividend (₦16,000), interim ordinary dividend (₦25,000), and proposed final ordinary dividend (₦40,000), giving a final balance of ₦126,000.

Step-by-Step Solution

1
Calculate total profit available for appropriation
₦225,000
Total profit available is the sum of retained profit brought forward (₦45,000) and net profit earned during the year (₦180,000).
2
Calculate transfer to General Reserve
₦18,000
The transfer to General Reserve is computed as 10% of the current year's net profit of ₦180,000.
3
Calculate preference share dividend
₦16,000
Preference dividend is calculated at 8% on the paid-up preference share capital of ₦200,000.
4
Calculate ordinary share interim and final dividends
Interim: ₦25,000; Final: ₦40,000
Dividends are calculated on issued ordinary share capital (₦500,000). Interim dividend = 5% of ₦500,000 = ₦25,000; Proposed final dividend = 8% of ₦500,000 = ₦40,000.
5
Deduct total appropriations from total profit available
₦126,000
Retained profit carried forward = ₦225,000 - (₦18,000 + ₦16,000 + ₦25,000 + ₦40,000) = ₦225,000 - ₦99,000 = ₦126,000.

Key Concept

Profit and Loss Appropriation Account Balance Determination
Rate this question

Topics

Profit and Loss Appropriation Account and Dividend Calculation

More questions from this topic