If you prepare a balance sheet based on all this information IF the dividends are only "Proposed" for example in 2004 wouldnt this increase the retained earnings to 292, meaning that if all other figures are presented accuratley as at 31 december 2004 basically the balance sheet is thrown out of balance? Shouldnt current assets have to increase to 822 for 2004 to represent the extra cash inorder to balance the balance sheet?
Hi I've just tried to look this question up, but can't find the numbers you mention in April 2006 Q20? If this is still a query, could you possibly check that it really is from the April 2006 paper? Thanks Lynn
Hi again Yes, I think you're right that if the dividends are just "proposed" then the retained earnings figure should be 292. The treatment of dividends in the accounts changed a couple of years ago, and several of the older exam questions/answers needed tweaking slightly to reflect this. Apologies for any confusion this has caused. The treatment of the dividends (and associated figures like the retained earnings) in the balance sheet and income statement in this question, is actually that for a dividend "proposed and approved". So, to avoid having to change other numbers in the accounts to keep the balance sheet balanced, it might be easier to treat this as a case where dividends had been "proposed and approved". So, for a proposed dividend, we would indeed have retained earnings at the end of 2004 of 200 + 92 (as you say). For a proposed and approved dividend, we have retained earnings at the end of 2004 of 200 + 92 - 42 (as quoted in the 2005 trial balance in this question). Hope this helps Kind regards Lynn
