236
follows
22. Fro
20. The comparative Balance Sheets of Samrat Ltd. as at 31st March, 2014 and 2015 were as
31.3.2015 31.3.2012
Fur
I.
Particulars
I. EQUITY AND LIABILITIES
Shareholders' funds:
Share capital
Sinking fund
Retained earnings
Provisions
Current liabilities:
Accounts payable
Notes payable
Mortgage
5,00,000
1,60,000
1,39,500
13,500
4,50,00
1,20,00
1,62,75
14,25)
1,50,000
1,00,000
4,00,000
14,63,000 14,02,00
1,80,00
75,00
4,00,00
II.
1,60,000
80,000
1,00,000
6,00,000
1,20,000
70,000
1,00,000
6,00,00
II. ASSETS
Non-current assets :
Sinking fund investments
Furniture & Fixtures
Land
Buildings
Accumulated depreciation :
Buildings
Furniture and fixtures
Current assets :
Cash and cash equivalents
Accounts receivable
Inventories
(1,20,000)
(32,000
(90,000
(24,000
1,12,000 85.000
2,13,000 2,35,000
3,50,000 3,06,000
14,63,000 14,02,00
Adde
(i)
(Ans
23. Fron
Additional informations :
(i) Net profit for 2014-15 amounted to * 66,750.
(ii) Dividend of 50,000 was paid during the year.
Prepare a statement of sources and uses of funds accounting for the changes in working capital
(Ans. Increase in Working Capital : 54,000; Funds from operations 71,04,000; Total of Funds Flow Statemen
*1,54,000]
The comparative Balance Sheets of a firm
I.
21.
YUTON
Answers
Answer:
What are Retained Earnings?
Retained Earnings (RE) are the accumulated portion of a business’s profits that are not distributed as dividends to shareholders but instead are reserved for reinvestment back into the business. Normally, these funds are used for working capital and fixed asset purchases (capital expenditures) or allotted for paying off debt obligations.
retained earnings example
Retained Earnings are reported on the balance sheet under the shareholder’s equity section at the end of each accounting period. To calculate RE, the beginning RE balance is added to the net income or reduced by a net loss and then dividend payouts are subtracted. A summary report called a statement of retained earnings is also maintained, outlining the changes in RE for a specific period.
The Purpose of Retained Earnings
Retained earnings represent a useful link between the income statement and the balance sheet, as they are recorded under shareholders’ equity, which connects the two statements. The purpose of retaining these earnings can be varied and includes buying new equipment and machines, spending on research and development, or other activities that could potentially generate growth for the company. This reinvestment into the company aims to achieve even more earnings in the future.
If a company does not believe it can earn a sufficient return on investment from those retained earnings (i.e., earn more than their cost of capital), then they will often distribute those earnings to shareholders as dividends or conduct a share buybacks.
What is the Retained Earnings Formula?
The RE formula is as follows:
RE = Beginning Period RE + Net Income/Loss – Cash Dividends – Stock Dividends
Where RE = Retained Earnings
retained earnings formula
Beginning of Period Retained Earnings
At the end of each accounting period, retained earnings are reported on the balance sheet as the accumulated income from the prior year (including the current year’s income), minus dividends paid to shareholders. In the next accounting cycle, the RE ending balance from the previous accounting period will now become the retained earnings beginning balance.
The RE balance may not always be a positive number, as it may reflect that the current period’s net loss is greater than that of the RE beginning balance. Alternatively, a large distribution of dividends that exceed the retained earnings balance can cause it to go negative.
How Net Income Impacts Retained Earnings
Any changes or movement with net income will directly impact the RE balance. Factors such as an increase or decrease in net income and incurrence of net loss will pave the way to either business profitability or deficit. The Retained Earnings account can be negative due to large, cumulative net losses. Naturally, the same items that affect net income affect RE.
Examples of these items include sales revenue, cost of goods sold, depreciation, and other operating expenses. Non-cash items such as write-downs or impairments and stock-based compensation also affect the account.
net income to retained earnings model