- July 4, 2021 at 8:15 pm #626977
– 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 #627046P2-D2Keymaster
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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.
ThanksJuly 7, 2021 at 11:28 am #627151
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
Property at valuation (land $20m; buildings $165m (note (i)) 185,000
Plant (note (i)) 180,500
Investments (note (ii)) 12,500
Trade receivables (note (iii)) 52,200
Cash and cash equivalents 3,800 140,000
Total assets 518,000
EQUITY AND LIABILITIES
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
Deferred tax – at 1 April 20X7 (note (iv)) 19,200
Current liabilities 81,800
Total equity and liabilities 518,000
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.
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.
(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
Buildings (165,000 / 15) 11,000
Plant (180,500 × 20%) 36,100
Gain on investment (W2) 1,000
Current year fraud loss (2,500)
Increase in deferred tax provision (W4) (800)
Income tax (11,400)
Total 51,400July 10, 2021 at 9:32 am #627328P2-D2Keymaster
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- Replies: 6473
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.
ThanksJuly 10, 2021 at 11:20 am #627359
Thanks for clarification.
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