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Income statement - Retained earnings & EPS

B

bbjpk

Member
In revision book 3, the solutions to different questions differ in that:

** Some questions have retained earning brought forward & carried forward - should I be doing this? If so, when (i.e. why in some questions & not others)?

** EPS is sometimes calculated as net profit after tax/no. of shares while other times it is calculated as retained earnings/no. of shares (i.e. the difference being whether the numerator includes/excludes dividend payments that have been made). Which is correct? Or if both are correct, how do I know which I should be doing?

Thanks!
 
Hi

Yes, you do need to add the earnings for this year to the retained earnings brought forward. The answers differ only in where they present this addition: Some do this at the end of the income statement and some do it in the balance sheet.

For the eps:

Earnings will "net profit after tax" if the company doesn't have to pay any dividends in respect of previous years out of this amount.

If it does have to pay previous year's dividends out of this year's earnings, those dividend amounts would be deducted.

Best of luck for Thursday
Lynn
 
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