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Difficulty: EasyProfit and Loss Appropriation Account and Dividend Calculation

Chidubem Ventures PLC has an authorized capital of ₦500,000 divided into 1,000,000 ordinary shares of 50k each. Out of these, 600,000 shares have been issued and fully paid-up. If the directors declare a dividend of 8% on ordinary share capital, what is the total dividend amount to be debited to the Profit and Loss Appropriation Account?

  1. ₦24,000Answer
  2. B
    ₦40,000
  3. C
    ₦48,000
  4. D
    ₦16,000

Answer

₦24,000
Dividends must be calculated strictly on the paid-up capital. The paid-up capital is 600,000 shares multiplied by ₦0.50 (50k), yielding ₦300,000. Computing 8% of ₦300,000 gives ₦24,000, which is the total dividend amount transferred from the Profit and Loss Appropriation Account.

Step-by-Step Solution

1
Calculate total paid-up share capital
600,000 shares × ₦0.50 = ₦300,000
Dividends are paid only on shares actually issued and paid for, converted from kobo to Naira (50k = ₦0.50).
2
Calculate the total dividend declared
8% × ₦300,000 = ₦24,000
The declared dividend percentage is applied directly to the total paid-up ordinary share capital.

Key Concept

Dividend Calculation on Paid-Up Capital
Estimated Time:45s
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Topics

Profit and Loss Appropriation Account and Dividend Calculation

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