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Difficulty: HardProfit and Loss Appropriation Account and Dividend Calculation

Highridge Capital Plc presents the following capital structure and financial information for the year ended 31st December 2025:

Financial ItemDetails / Amount
Issued 6%6\% Preference Shares of ₦1.00₦1.00 each₦500,000₦500,000
Issued Ordinary Shares of ₦0.50₦0.50 each800,000800,000 shares
Net profit for the year ended 31st December 2025₦185,000₦185,000
Retained profit brought forward (1st1\text{st} January 2025)₦35,000₦35,000

The board of directors approved the following appropriations:
- Transfer to General Reserve: ₦40,000₦40,000
- Interim ordinary dividend paid: ₦15,000₦15,000
- Preference share dividend: Fully provided for
- Proposed final ordinary dividend: 5%5\% on paid-up ordinary share capital

What is the retained profit balance carried forward to the next financial year?

  1. A
    ₦95,000
  2. ₦115,000Answer
  3. C
    ₦80,000
  4. D
    ₦145,000

Answer

The retained profit carried forward to the next financial year is ₦115,000.
The total profit available for appropriation is ₦220,000 (₦185,000 current net profit + ₦35,000 opening retained profit). The total appropriations consist of the preference dividend of ₦30,000 (6%×₦500,0006\% \times ₦500,000), general reserve transfer of ₦40,000, interim ordinary dividend of ₦15,000, and proposed final ordinary dividend of ₦20,000 (5% of [800,000×₦0.50=₦400,000]5\% \text{ of } [800,000 \times ₦0.50 = ₦400,000]). Subtracting the total appropriations of ₦105,000 from ₦220,000 leaves a retained profit carried forward of ₦115,000.

Step-by-Step Solution

1
Calculate the total profit available for appropriation
Total Available Profit = ₦185,000 (Net Profit for year) + ₦35,000 (Retained Profit b/f) = ₦220,000
Retained profits brought forward from previous periods must be added to the current period's net profit to determine distributable profits.
2
Calculate preference share dividend
Preference Dividend = 6% × ₦500,000 = ₦30,000
Fixed preference dividends are calculated as a percentage of paid-up preference share capital.
3
Calculate ordinary share capital and proposed final ordinary dividend
Paid-up Ordinary Share Capital = 800,000 shares × ₦0.50 = ₦400,000. Proposed Final Ordinary Dividend = 5% × ₦400,000 = ₦20,000
Dividends are computed on the total nominal paid-up monetary value of capital, not simply on the number of issued shares.
4
Sum all appropriations and calculate retained profit carried forward
Total Appropriations = ₦30,000 (Pref. Div) + ₦40,000 (General Reserve) + ₦15,000 (Interim Div) + ₦20,000 (Final Ord. Div) = ₦105,000. Retained Profit c/f = ₦220,000 - ₦105,000 = ₦115,000
Subtracting total appropriations from total available profit gives the retained balance carried forward.

Key Concept

Profit and Loss Appropriation Account and Dividend Calculation
Estimated Time:2m 0s
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Profit and Loss Appropriation Account and Dividend Calculation

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