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Hello Sir,
Good Day
Could you please explain the solution to the following question?
1. On 1st April 2004, the balance on B’s Retained Earnings was $50,000 credit. The balance on 31st March 2005 was 100,000 credit. On 10th March 2005, dividends of $50,000 were declared in respect of the year ended 31st March 2005, payable on 31st May 2005.
Based on this information, what was the profit after tax for the year ended 31st March 2005?
Ans: $100,000
As per my understanding they were asking for the profit after tax for the YEAR ended 31st March 2005.
Would 50,000 not be the answer, since RE already had a balance of 50,000 from the previous year? What am I not able to understand?
Would really appreciate your help.
Thank you!
The dividend of 50,000 was declared before the end of the year.
Therefore the balance on the retained earnings at the end of the year must have been the retained earnings brought forward (50,000) plus the profit for the year (100,000) less the dividends declared (50,000).
Oh right! Thank you so much sir! I missed the part of it being declared before YE.
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