Statement of Changes in Equity (Cambridge (CIE) IGCSE Accounting)

Worked Example

On 1 April 2023, P and Q Limited supplied the following information:

• In total, there were 800 000 ordinary shares of $0.75 each

• In total, there were 400 000 5% redeemable preference shares of $1 each

• The balance of the general reserve was $62 000

• The retained earnings amounted to $55 000

On 31 March 2024, P and Q Limited supplied the following information:

• The profit from operations for the year ended 31 March 2024 was $90 000

• Half of the preference share dividends were paid on 1 October 2023 and the rest were outstanding at 31 March 2024

• There were no other finance costs apart from the preference share dividends

• On 1 January 2024, an interim dividend of $32 000 was paid

• On 31 March 2024, $12 000 was transferred from the retained earnings to the general reserve

• On 31 March 2024, the directors proposed the payment of an ordinary share dividend of 10%

Prepare the statement of changes in equity for the year ended 31 March 2024 for P and Q Limited.

Answer

Identify the key information given on 1 April 2023.

• In total, there were 800 000 ordinary shares of $0.75 each

  • Calculate the ordinary share capital on 1 April 2023 by multiplying the number of shares by the price of a share

    • Ordinary share capital: 800 000 × $0.75 = $600 000

• In total, there were 400 000 5% redeemable preference shares of $1 each

  • Redeemable preference shares are liabilities so they do not appear on the statement of changes in equity

• The balance of the general reserve was $62 000

  • This is the opening balance on the statement of changes in equity

• The retained earnings amounted to $55 000

  • This is the opening balance on the statement of changes in equity

Identify the key information given on 31 March 2024.

• The profit from operations for the year ended 31 March 2024 was $90 000

  • This is before the finance costs are subtracted

• Half of the preference share dividends were paid on 1 October 2023 and the rest were outstanding at 31 March 2024

  • The full dividend is a finance cost for the year as it was owed that year

    • Regardless of how much of it was actually paid

  • Calculate the dividends by multiplying the percentage by the number of shares and then multiply by the value of a share

    • 5% × 400 000 × $1 = $20 000

• There were no other finance costs apart from the preference share dividends

  • Subtract the dividends for redeemable preference shares from the profit from operations

    • Profit for the year: $90 000 - $20 000 = $70 000

    • This will increase the retained earnings

• On 1 January 2024, an interim dividend of $32 000 for the ordinary shares was paid

  • This will decrease the retained earnings

    • The interim dividend was paid in the current year so it is entered on the statement of changes in equity

• On 31 March 2024, $12 000 was transferred from the retained earnings to the general reserve

  • This will decrease the retained earnings but increase the general reserve

• On 31 March 2024, the directors proposed the payment of an ordinary share dividend of 10%

  • Any proposed dividend at the end of the year that remains unpaid, should not be included on the statement of changes in equity

Complete the statement of changes in equity using the required format. Remember to total up rows and columns. Put brackets around values if they are to be subtracted.