Question on: JAMB Accounting - 2023
Larry Limited has 4,000,000 ordinary shares of 50k each and 150,000 5% prefrence shares of ₦1 each fully paid.
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₦ | |
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Net profit for the year | 90,000 |
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Interim dividends paid: | |
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Ordinary shares | 25,000 |
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Profit and loss appropriation b/f | 10,000 |
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Goodwill written off | 1,000 |
The amount of preference shares dividends payable at the end of the year is
₦10,000
₦25,000
₦7,500
₦20,000
To calculate the amount of preference shares dividends payable at the end of the year, we need to consider the 5% preference shares and the net profit available for distribution.
First, calculate the annual preference shares dividends:
Preference Shares Dividends = Number of Preference Shares * Par Value per Share * Dividend Rate
Preference Shares Dividends = 150,000 * ₦1 * 5% = ₦7,500
Now, let's calculate the net profit available for distribution to both ordinary and preference shareholders:
Net Profit = Net Profit for the Year - Interim Dividends Paid - Profit and Loss Appropriation b/f - Goodwill Written Off
Net Profit = ₦90,000 - ₦25,000 - ₦10,000 - ₦1,000 = ₦54,000
Now, we need to allocate this net profit between ordinary and preference shareholders. First, we pay the preference shareholders their fixed dividend:
Preference Shareholders Dividend = ₦7,500
Next, we allocate the remaining profit to ordinary shareholders:
Ordinary Shareholders Dividend = Net Profit - Preference Shareholders Dividend
Ordinary Shareholders Dividend = ₦54,000 - ₦7,500 = ₦46,500
So, the amount of preference shares dividends payable at the end of the year is ₦7,500
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