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?

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