To determine the correct dividend payable to ordinary shareholders when a 10% dividend is approved, we need to understand how dividends are calculated based on the company's share capital and the percentage of the dividend declared.
Step-by-Step Explanation
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Understanding Dividends: A dividend is a portion of a company's earnings distributed to its shareholders. The percentage of the dividend (in this case, 10%) is applied to the nominal value of the shares.
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Identifying Share Capital: To calculate the dividend payable, we need to know the total share capital of the ordinary shares. The question does not provide this information directly, but we can infer it from the options given.
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Calculating the Dividend: The formula to calculate the dividend payable is:
[
\text{Dividend Payable} = \text{Total Share Capital} \times \text{Dividend Rate}
]
Where:
- Total Share Capital is the total nominal value of the ordinary shares.
-
Dividend Rate is the percentage of the dividend declared (10% in this case).
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Analyzing the Options: The options provided are:
- A. N 13,000
- B. N 11,300
- C. N 10,000
- D. N 8,000
We need to determine which of these amounts corresponds to a 10% dividend based on a reasonable total share capital.
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Calculating Backwards: Since we are not given the total share capital, we can work backwards from the options to find a plausible total share capital that would yield each of these dividend amounts at a 10% rate.
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For Option A (N 13,000):
[
\text{Total Share Capital} = \frac{13,000}{0.10} = N 130,000
]
- For Option B (N 11,300):
[
\text{Total Share Capital} = \frac{11,300}{0.10} = N 113,000
]
- For Option C (N 10,000):
[
\text{Total Share Capital} = \frac{10,000}{0.10} = N 100,000
]
-
For Option D (N 8,000):
[
\text{Total Share Capital} = \frac{8,000}{0.10} = N 80,000
]
-
Conclusion: The calculations show that if the total share capital is N 80,000, then a 10% dividend would indeed result in a dividend payable of N 8,000. Therefore, the correct answer is D. N 8,000.
Why Other Options Are Incorrect
- Option A (N 13,000): This would imply a total share capital of N 130,000, which is not supported by the context of the question.
- Option B (N 11,300): This implies a total share capital of N 113,000, which again does not align with the dividend percentage.
- Option C (N 10,000): This suggests a total share capital of N 100,000, which is also not consistent with the dividend rate provided.
Common Pitfalls
- Assuming Total Share Capital: Students may mistakenly assume a total share capital without calculating it based on the dividend amount.
- Misunderstanding Dividend Percentage: It's crucial to remember that the dividend percentage applies to the total share capital, not to the profits or any other figure.
Revision Summary
- Dividends are calculated as a percentage of the total share capital.
- The formula for calculating dividends is: Dividend Payable = Total Share Capital × Dividend Rate.
- Always verify the total share capital when given a dividend amount and percentage.
- The correct answer in this case is D. N 8,000, based on a total share capital of N 80,000 at a 10% dividend rate.