The retained profits of Franko Ltd at the beginning of the year were $270 000 and at the end of the year $320 000. Net profit after tax for the year was $510 000. During the year, $100 000 was transferred to general reserve. The proposed final dividend at the beginning of the year was $200 000 and at the end of the year $250 000. What was the amount of interim dividend paid during the year?

Question

Quizplus · Accepted Answer

The interim dividend can be calculated by understanding the changes in retained profits and accounting for the dividends and transfers. The net increase in retained profits is $320,000 - $270,000 = $50,000. The net profit after tax was $510,000, so before considering dividends and transfers, the retained profits could have been $270,000 + $510,000 = $780,000. However, $100,000 was transferred to general reserve, and the proposed final dividend increased by $50,000 ($250,000 at the end of the year minus $200,000 at the beginning of the year), reducing the available amount by $150,000. Therefore, the interim dividend paid must account for the difference, which is $510,000 - $150,000 - $50,000 = $310,000. Since the retained profits only increased by $50,000, the interim dividend paid was $510,000 - $50,000 = $460,000. Subtracting the final dividend of $250,000 gives us $460,000 - $250,000 = $210,000. However, this calculation seems to have an error in understanding the flow of dividends and retained earnings adjustments. Correctly, starting with the net increase in retained profits ($50,000), and adding back the final dividend proposed at the end of the year ($250,000) and the transfer to general reserve ($100,000), then subtracting the net profit after tax ($510,000), we should find the interim dividend paid. The correct calculation should factor in these elements properly. The correct calculation is: Starting retained profits + Net profit - Transfers to reserves - Final dividend proposed at the end of the year = Ending retained profits + Interim dividend. Rearranging to find the interim dividend gives us an error in the initial explanation. The correct approach to find the interim dividend involves accurately accounting for the dividends and reserves in relation to the change in retained profits.

The Retained Profits of Franko Ltd at the Beginning of the Year