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WAEC SSCE - Financial Accounting - 2008 (Objective)

Question 1 Report

Tale LTd. has 100,000 ordinary shares of ₦1 each and 60,000 5% preference shares of ₦1 each. Both were fully paid as shown below,
\(\begin{array}{c|c} & ₦\\ \text{Profit and loss appropriation b/f} & 10,000\\ \text{Net profit for the year} & 6,000\\ \text{Proposed dividend on ordinary shares} & 4,000\\ \text{Interim dividend} & 6,000\\ \text{Goodwill written off} \\ 600\end{array}\)
The dividend payable to preference shareholders is
Answer Details
To calculate the dividend payable to preference shareholders, we need to first find the net profit available for appropriation. Net profit available for appropriation = Net profit for the year - Proposed dividend on ordinary shares - Interim dividend - Goodwill written off Net profit available for appropriation = ₦6,000 - ₦4,000 - ₦6,000 - ₦600 = (₦4,600) Since preference shares have a fixed dividend rate of 5%, we can calculate the dividend payable to preference shareholders as follows: Dividend payable to preference shareholders = 5% of (number of preference shares * par value per share) = 5% of (60,000 * ₦1) = ₦3,000 Therefore, the dividend payable to preference shareholders is ₦3,000. Option (c) ₦3,000 is the correct answer.
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