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    Question

    The break-up of the Shareholder Equity of ABC Ltd as on 1 April 2021 was as follows:

    Share Capital 250,000
    Securities Premium 150,000
    Retained Profits 100,000
    Revaluation Reserve 50,000

    Each share is having a face value of Rs.10. During the year, the company has come up with a rights issue of 1:1 and the issue price was Rs.13. ABC Ltd paid a dividend of 0.05 per share. What would be the balance in Retained Profits account after the effect of these transactions?

    A 99000 Correct Answer Incorrect Answer
    B 100000 Correct Answer Incorrect Answer
    C 125000 Correct Answer Incorrect Answer
    D 97500 Correct Answer Incorrect Answer
    E 120000 Correct Answer Incorrect Answer

    Solution

    The retained profit will be impacted by the dividend paid. Dividend paid per share is Rs.0.05. No. of original shares = Share capital/face value = 250000/10 = 25,000 Shares issued under Rights Issue = in the ratio of 1:1 i.e. 25000 additional shares for which the amount will be added in Share Capital at Rs. 10 each and Share Premium account for excess amount i.e Rs.3 each. For the dividends total no. of shares = 25000+25000 = 50,000 Dividend paid = 50000*0.05 = Rs.2500 Retained profits = opening balance – dividend paid = 100,000 – 2500 = 97,500

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