Question

Twisters Ltd made a profit for the year ended 31 March 2020 of £30,000. During that year the company had paid preference dividends on 100,000 5% preference shares. In addition, an ordinary dividend of 4 pence per share was paid on 200,000 ordinary shares. What was the retained profit for the year ended 31 March 2020? Select one:

a. £25,000
b. £17,000
c. £30,000
d. £22,000

Answer 1

Twisters Ltd's retained profit for the year ended 31 March 2020 is £17,000, after accounting for preference and ordinary dividends paid out of the total profit.

Step-by-step explanation:

The calculation of retained profit for Twisters Ltd for the year ended 31 March 2020 considers both the preference dividends and the ordinary dividends. First, we need to calculate the preference dividends which are paid on the 100,000 5% preference shares. The preference dividends amount to £5,000 (100,000 × 0.05). Next, the ordinary dividend paid is calculated by multiplying the number of ordinary shares by the dividend per share, equating to £8,000 (200,000 × £0.04). After subtracting the total dividends (£5,000 + £8,000 = £13,000) from the profit (£30,000), the retained profit is £17,000 (£30,000 - £13,000).