A Level Accounting (9706)•9706/13/M/J/18
Explanation
Adjusting equity for profit and reserve transfer Steps:
- Start with opening total equity of $40,000.
- Add profit for the year of 55,000.
- Subtract transfer to general reserve of 47,000.
- Dividends and rights issue do not alter this base equity adjustment under the given appropriations.
Why C is correct:
- Total equity equals opening balance plus profit minus transfers to reserves, per the statement of changes in equity where internal reserve transfers adjust the composition but the net calculation reflects this deduction in basic models.
Why the others are wrong:
- A ignores the profit addition, understating by $15,000.
- B adds profit but ignores transfer to reserve, overstating by $8,000.
- D duplicates C but is listed separately without distinction.
Final answer: C
Topic: Preparation of financial statements
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