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Difficulty: MediumProfit and Loss Appropriation Account and Dividend Calculation

Apex Zenith Ltd has an authorized share capital of 1,000,0001,000,000 ordinary shares of ₦1₦1 each, out of which 600,000600,000 shares are fully issued and paid up. The company also has 200,000200,000, 5%5\% preference shares of ₦1₦1 each. For the year ended 31st December 2025, the net profit before appropriations was ₦150,000₦150,000.

The directors resolved to:
- Transfer ₦30,000₦30,000 to General Reserve
- Pay preference share dividends in full
- Pay a 10%10\% dividend on ordinary shares

What is the balance of retained profit carried forward to the Statement of Financial Position?

  1. ₦50,000Answer
  2. B
    ₦10,000
  3. C
    ₦60,000
  4. D
    ₦90,000

Answer

The retained profit balance carried forward to the Statement of Financial Position is ₦50,000.
The retained profit carried forward is determined by deducting all profit appropriations (preference dividend of ₦10,000, ordinary dividend of ₦60,000 calculated on issued capital, and general reserve transfer of ₦30,000) from the net profit of ₦150,000, yielding ₦50,000.

Step-by-Step Solution

1
Calculate the preference dividend payable
5% of ₦200,000 preference shares = ₦10,000
Preference dividends are fixed obligations based on the paid-up preference share capital.
2
Calculate the ordinary dividend payable
10% of paid-up ordinary share capital (₦600,000) = ₦60,000
Dividends are computed exclusively on issued and paid-up share capital, not authorized capital.
3
Sum total appropriations of profit
₦10,000 (Preference Div) + ₦60,000 (Ordinary Div) + ₦30,000 (General Reserve) = ₦100,000
All distributions and allocations from net profit must be totaled.
4
Subtract total appropriations from net profit to determine retained profit
₦150,000 - ₦100,000 = ₦50,000
The undistributed portion of net profit is carried forward to equity in the balance sheet.

Key Concept

Profit and Loss Appropriation Account and Dividend Calculation on Paid-Up Capital
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Topics

Profit and Loss Appropriation Account and Dividend Calculation

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