Accumulated profit/retained earnings is a component of shareholder’s equity and represents the cumulative amount of a company’s profit since its inception after adjustments for dividend payments and transfer to other reserves.
Example:
A company started its operations in the year 2013. The company’s earnings and profit distributions for the last 3 years are as follows:
| Year |
Profit / (Loss) |
Dividend Announced |
|
2013 |
$ 60,000 |
$ 30,000 |
|
2014 |
$ (20,000) |
Nil |
|
2015 |
$ 150,000 |
$ 75,000 |
The company’s accumulated profits over the 3 years period will be as follows:
|
Year 2013 |
|
| Opening Accumulated profit |
– |
| Add: Profit for the year |
60,000 |
| Less: Dividend for the year |
(30,000) |
|
30,000 |
|
|
|
|
| Year 2014 |
|
| Opening Accumulated profit |
30,000 |
| Add: Profit for the year |
(20,000) |
| Less: Dividend for the year |
– |
| Closing Accumulated Profit |
10,000 |
|
|
|
|
|
|
| Year 2015 |
|
| Opening Accumulated profit |
10,000 |
| Add: Profit for the year |
150,000 |
| Less: Dividend for the year |
(75,000) |
| Closing Accumulated Profit |
85,000 |
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