Answer To Accounting Test Question No. Ltd 2 On Limited Companies-Profit & Loss Appropriation Account

The question on this limited company asked for a simple preparation of the Profit & Loss Appropriations where the dividends are considered.

Jim Ltd

Profit & Loss Appropriation for the year ended 31 December 2007

	$	$
Net Profit		900,000
Add: Retained profit b/d		50,000
		950,000
Less: Appropriation
Interim dividend for:
Preference share	5,000
Ordinary share	100,000

Proposal dividend for:
Preference share (W1)	5,000
Ordinary share(W2)	100,000
Transfer to Fixed Assets Replacement Reserve	60,000	270,000
Retained Profit C/f		680,000

Workings:

W1 Preference share dividend for the year

=$100,000 x 10%=$10,000 per annum

=$10,000-$5,000=$5,000

Therefore the director recommend $5,000 for preference share dividend.

W2 Proposed ordinary share dividend=$0.5 x 200,000 per unit=$100,000