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Difficulty: EasyProfit and Loss Appropriation Account and Dividend Calculation

Kolawole Nigeria Ltd has an authorized share capital of 500,000500,000 ordinary shares of ₦1 each, of which 300,000300,000 shares are fully issued and paid-up. If the directors declare a dividend of 10%10\% on ordinary shares, what is the total amount of dividend payable?

  1. A
    ₦50,000
  2. ₦30,000Answer
  3. C
    ₦20,000
  4. D
    ₦80,000

Answer

The total amount of dividend payable is ₦30,000.
Dividends are always calculated on the paid-up share capital of the company. With 300,000300,000 fully paid-up shares at ₦1 each, total paid-up capital is ₦300,000. A 10%10\% dividend yields 0.10×₦300,000=₦30,0000.10 \times \text{₦}300,000 = \text{₦}30,000.

Step-by-Step Solution

1
Determine the paid-up share capital value.
Paid-up Share Capital = 300,000 shares×₦1=₦300,000300,000 \text{ shares} \times \text{₦}1 = \text{₦}300,000.
Dividends can only be declared and paid on shares that have actually been issued and paid for, not on authorized or unissued capital.
2
Calculate the declared dividend amount.
Dividend Payable = 10%×₦300,000=₦30,00010\% \times \text{₦}300,000 = \text{₦}30,000.
Applying the declared percentage dividend rate (10%10\%) to the paid-up share capital.

Key Concept

Calculation of Ordinary Share Dividend on Paid-up Capital
Estimated Time:45s
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Topics

Profit and Loss Appropriation Account and Dividend Calculation

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