I was doing the ACCA past papers March/June 2018 question 31 (v)
I was wondering why is the additional profit of 8% so profit after tax of £1000 existing profit- less new profit £1249 so £ 249 not added to the retained earnings when calculating debt/equity ratio?
I assumed if new equity finance was issued: It would be 4500/7988+2000 plus the additional 249 retained which was generated by the new investment.
However they have not accounted for the additional retained earnings for some reason?
The calculations are only there for the purposes of the discussion and the examiners answer looks at the immediate effect on the gearing rather than the gearing in a years time.