A company has total assets of £500,000, share capital of £200,000, share premium of £40,000, non-current liabilities of £90,000 and current liabilities of £60,000. What are its retained earnings?
Answer and explanation
Correct answer: D. £110,000
- Step 1: Equity = assets - all liabilities = £500,000 - £90,000 - £60,000 = £350,000.
- Step 2: Retained earnings = equity - share capital - share premium = £350,000 - £200,000 - £40,000 = £110,000.
Answer
£110,000.
Why not the others: £200,000 forgets to deduct the non-current liabilities of £90,000. £170,000 forgets to deduct the current liabilities of £60,000. £190,000 adds the share premium instead of deducting it.
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