Retained earnings = opening balance + net profit - dividends (bonus from general reserve ignored) Steps:

• Begin with opening retained earnings balance of $958,000 on 1 April 2021.
• Compute net profit by subtracting debenture interest paid ($100,000) from profit before debenture interest ($978,000).
• Add net profit to opening balance and subtract ordinary share dividends paid ($150,000).
• Confirm bonus shares issued from general reserve do not reduce retained earnings, as reserves are separate. Why B is correct:
• Matches the accounting formula: closing retained earnings = opening + (profit before interest - interest) - dividends, excluding bonus capitalization from general reserve (per equity accounting standards). Why the others are wrong:
• A incorrectly deducts bonus issue value ($250,000) from retained earnings.
• C forgets to deduct debenture interest, overstating net profit.
• D adds back dividends or misapplies interest deduction. Final answer: B