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Recalculation of the profit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Recalculation of the profit

  • This topic has 9 replies, 3 voices, and was last updated 2 years ago by radhwaan.
Viewing 10 posts - 1 through 10 (of 10 total)
  • Author
    Posts
  • July 4, 2021 at 8:15 pm #626977
    alawi sayed
    Participant
    • Topics: 301
    • Replies: 352
    • ☆☆☆☆

    Hello sir,

    – If we want to recalculate the profit for the year due to further adjustments why have to add back the dividends ,

    Thanks,

    July 5, 2021 at 8:28 pm #627046
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7172
    • ☆☆☆☆☆

    Hi,

    It is presumably because you have been given a profit figure where the dividends have been deducted when they should not have been, so presumably as some sort of error. The adjustment is then correcting this error. I’d need to see the question first to be able to give a full explanation.

    Thanks

    July 7, 2021 at 11:28 am #627151
    alawi sayed
    Participant
    • Topics: 301
    • Replies: 352
    • ☆☆☆☆

    This question from Bpp Kit,

    where the add back the dividends for recalculation of the profit for the year,

    308 Dexon plc 36 mins
    Below is the summarised draft statement of financial position of Dexon plc, a publicly listed company, as at
    31 March 20X8.
    $’000 $’000 $’000
    ASSETS
    Non-current assets
    Property at valuation (land $20m; buildings $165m (note (i)) 185,000
    Plant (note (i)) 180,500
    Investments (note (ii)) 12,500
    378,000

    Current assets
    Inventories 84,000
    Trade receivables (note (iii)) 52,200
    Cash and cash equivalents 3,800 140,000
    Total assets 518,000

    EQUITY AND LIABILITIES
    Equity
    Ordinary shares of $1 each 250,000
    Share premium 40,000
    Revaluation surplus 18,000
    Retained earnings – At 1 April 20X7 12,300
    – For the year ended 31 March 20X8 96,700
    109,000
    417,000

    Non-current liabilities
    Deferred tax – at 1 April 20X7 (note (iv)) 19,200
    Current liabilities 81,800
    Total equity and liabilities 518,000

    Questions
    The following information is relevant:
    (i) The non-current assets have not been depreciated for the year ended 31 March 20X8.
    Dexon plc has a policy of revaluing its land and buildings at the end of each accounting year. The values in
    the above statement of financial position are as at 1 April 20X7 when the buildings had a remaining life of 15
    years. A qualified surveyor has valued the land and buildings at 31 March 20X8 at $180 million.
    Plant is depreciated at 20% on the reducing balance basis.
    (ii) The investment is a fund whose value changes directly in proportion to a specified market index. The
    investment is measure at financial assets at fair value through profit and loss are held. At 1 April 20X7 the
    relevant index was 1,200 and at 31 March 20X8 it was 1,296.
    (iii) In late March 20X8 the directors of Dexon plc discovered a material fraud perpetrated by the company’s
    credit controller that had been continuing for some time. Investigations revealed that a total of $4 million of
    the trade receivables as shown in the statement of financial position at 31 March 20X8 had in fact been paid
    and the money had been stolen by the credit controller. An analysis revealed that $1.5 million had been
    stolen in the year to 31 March 20X7 with the rest being stolen in the current year. Dexon plc is not insured
    for this loss and it cannot be recovered from the credit controller, nor is it deductible for tax purposes.
    (iv) During the year the company’s taxable temporary differences increased by $10 million of which $6 million
    related to the revaluation of the property. The deferred tax relating to the remainder of the increase in the
    temporary differences should be taken to profit or loss. The applicable income tax rate is 20%.
    (v) The above figures do not include the estimated provision for income tax on the profit for the year ended
    31 March 20X8. After allowing for any adjustments required in items (i) to (iii), the directors have estimated
    the provision at $11.4 million (this is in addition to the deferred tax effects of item (iv)).
    (vi) Dividends totalling $15.5 million were paid during the year.
    Required
    Taking into account any adjustments required by items (i) to (vi) above:
    (a) Prepare a statement showing the recalculation of Dexon plc’s profit for the year ended 31 March 20X8.
    (8 marks)
    (b) Redraft the statement of financial position of Dexon plc as at 31 March 20X8. (12 marks)
    Notes to the financial statements are not required

    This is the answer

    (a) $’000 $’000
    Draft retained profit 96,700
    Dividends paid 15,500
    Draft profit for the year 112,200
    Depreciation:
    Buildings (165,000 / 15) 11,000
    Plant (180,500 × 20%) 36,100
    (47,100)
    Gain on investment (W2) 1,000
    Current year fraud loss (2,500)
    Increase in deferred tax provision (W4) (800)
    Income tax (11,400)

    Total 51,400

    July 10, 2021 at 9:32 am #627328
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7172
    • ☆☆☆☆☆

    Yes, you are given the retained profit (effectively the retained earnings at the end of the year) and not the profit for the year, so to get back to the profit for the year you will need add back the dividends.

    Thanks

    July 10, 2021 at 11:20 am #627359
    alawi sayed
    Participant
    • Topics: 301
    • Replies: 352
    • ☆☆☆☆

    Thanks for clarification.

    May 7, 2023 at 9:24 pm #684029
    radhwaan
    Participant
    • Topics: 30
    • Replies: 43
    • ☆☆

    Sir in the same above question, the closing deferred tax position can be calculated as 10,000,000×20%=2,000,000( Temp diff ×tax rate)

    But in the answer provided by BPP the deferred tax amount is shown as following in the Statement of Financial Position:

    NCL

    Deferred Tax (19200+2000) 21200

    And could you please explain points (iv) and (v) with the answers as well.

    Thanks!

    May 14, 2023 at 10:20 am #684333
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7172
    • ☆☆☆☆☆

    Maybe BPP have different numbers in their example.

    What is it that you do not specifically understand in the last two parts. Let me know and I can look to help.

    Thanks

    May 14, 2023 at 7:48 pm #684349
    radhwaan
    Participant
    • Topics: 30
    • Replies: 43
    • ☆☆

    Hi

    No sir its the exact same question
    What i didn’t understand is that for the closing balance of deferred tax taht has to be recorded in the SFP the amount they have recorded is the opening balance plus the closing balance (Opening balanceas at 1 April 20×7 19200+ 2000(calculated deferred tax closing balance))

    Aren’t we supposed to show the closing balance as just 2000(temp diff×tax rate)?

    Thanks. God bless you sir

    May 18, 2023 at 7:03 pm #684622
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7172
    • ☆☆☆☆☆

    The figure given in the question relates to the movement in deferred tax, so to get the closing balance we add the opening balance to the movement and then show the combined total on the face of the SFP.

    Thanks

    May 28, 2023 at 12:14 pm #685231
    radhwaan
    Participant
    • Topics: 30
    • Replies: 43
    • ☆☆

    Thank you sir

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