On 1 April 20X1 the directors of Davo Ltd resolved to pay shareholders an interim cash dividend of $0.35 per share on 1 May 20X1.Davo Ltd's financial year end is 30 June.Davo Ltd prepares monthly accounts.At 31 March 20X1, the equity section of Davo Ltd's balance sheet is as follows:
$$\begin{array} { l r }
&\$\
\text { Issued share capital (1 } 1000000 \text { shares) } & 2000000 \
\text { Retained profits } & 3800000 \
\text { Asset revaluation reserve } & 955000 \
\text { General reserve } & \underline{445000} \
\text { Total } & 7200000
\end{array}$$
-How would you calculate the balance of retained profits at 30 June 20X1?

Question

On 1 April 20X1 the directors of Davo Ltd resolved to pay shareholders an interim cash dividend of $0.35 per share on 1 May 20X1.Davo Ltd's financial year end is 30 June.Davo Ltd prepares monthly accounts.At 31 March 20X1, the equity section of Davo Ltd's balance sheet is as follows:
 $$\begin{array} { l r } 
&\$\
\text { Issued share capital (1 } 1000000 \text { shares) } & 2000000 \
\text { Retained profits } & 3800000 \
\text { Asset revaluation reserve } & 955000 \
\text { General reserve } & \underline{445000} \
\text { Total } & 7200000
\end{array}$$
-How would you calculate the balance of retained profits at 30 June 20X1?

Quizplus · Accepted Answer

Retained profits at 31 March 20X1 were $3,800,000. The directors have declared an interim cash dividend of $0.35 per share on 1 May 20X1. The total number of shares is 1,000,000 (as given in question). 
Therefore, the total dividend to be paid by Davo Ltd is $350,000 (i.e., 1,000,000 x $0.35).
Since Davo Ltd prepares monthly accounts and the financial year-end is 30 June 20X1, we need to calculate profits for April, May, and June 20X1.
Hence, the balance of retained profits at 30 June 20X1 would be:
Retained profits at 31 March 20X1 + Profits for April, May, and June 20X1 - Interim dividend
= $3,800,000 + Profits for April, May, and June 20X1 - $350,000 (interim dividend)
= $3,800,000 + Profits for April, May, and June 20X1 - $350,000
Therefore, option B is correct.

On 1 April 20X1 the Directors of Davo Ltd Resolved