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- This topic has 8 replies, 2 voices, and was last updated 7 years ago by MikeLittle.
- March 13, 2016 at 10:11 pm #306246
I`ve found a question in the F4 BPP exam kit that I think has an incorrect answer to it.
Here`s the question:
Dee and Eff are major shareholders in, and the directors of, Fan Co. For the year ended 30 April 20X8 Fan
Cos’s financial statements showed a loss of $2,000 for the year and no profits were carried forward. For the
year ended 30 April 20X9 Fan Co made a profit of $3,000. Also, due to a revaluation, the value of its land and
buildings increased by $5,000. As a consequence, Dee and Eff recommended, and the shareholders
approved, the payment of $4,000 in dividends.
(a) Explain the legality of the dividend payment.
The answer provided in the book is:
Only accumulated profit is a distributable reserve out of which dividend’s may be paid. In Fan Co’s case the
total is $3,000 for the year and no profits were brought forward from previous years. The profit on
revaluation of land and buildings is credited to the revaluation reserve, not to the profit and loss reserve and
is not distributable.
For the year in question, $4,000 was paid as a dividend. The payment would only be legal if the company
had accumulated realised profits equal to or greater than $4,000. The company only had $3,000 and
therefore the payment is illegal.
I think the correct answer is that since the rule is that we use accumulated profits less accumulated losses to find distributable profit, the company needed to have accumulated realised profits of 6000 to be able to pay the 4000 dividend due to the 2000 loss suffered in the first year.
I`d love for you to clear this up for me
P.S love the work you lot doMarch 13, 2016 at 11:05 pm #306252
I agree with you! There must be some nuance about the $2,000 losses in 2008 wiped out the accumulated profits brought forward from 2007 so the retained earnings balance at the start of the year brought forward was a balance of $nil
And even then, the maximum dividend would be the $3,000 profits made this year
OK?March 14, 2016 at 2:40 pm #306346
Yeap got it. I have my exam this Friday and really appreciate your help.
Once again I love the job you guys are doing on here. Keep it up!March 14, 2016 at 9:00 pm #306412
Thanks, and good luck on Friday. Let me know how you get onMarch 14, 2016 at 9:04 pm #306413
I’ve just seen your post in answer to a question on this page. May I ask you please not to respond to questions on this page
The open forum is there for your input whereas this page is called “Ask ACCA Tutor” for a good reasonMarch 14, 2016 at 9:07 pm #306415
Ah okay will do
Didn`t notice I was on the ask ACCA tutor page.March 14, 2016 at 9:08 pm #306416
Ok, no harm done, this time!March 19, 2016 at 1:16 pm #307060
Hey mate, how`s it going?
You`d asked me to let you know of my results since I was sitting my exam today.
Well I scored 80.
To be honest I expected it because had read the text book twice, done the kit thrice, done and reviewed the mock exams and the same for the specimen.
Effort well worth it hah. Anyway, thanks!March 19, 2016 at 4:42 pm #307076
That’s a good score …… but you must be disappointed with the missing 20!
With all that work and preparation behind you ……….
Seriously, that’s a ally good score and hopefully you can replicate it through the remaining exams
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