Question
Presented below is a set of financial data for Faro plc as at 31 Dec 2021: & multicolumn(1)(|c|)( Em ) Ordinary shares of E1 each & 200 Share premium account & 30 Other reserves & 50 Retained earnings & 25 Total & 305 Which of the following statements is incorrect about Retained earnings: Retained earnings form part of shareholders equity in the statement of financial positic Retained earnings represent a source of internal finance for companies. Retained earnings appear in the statement of financial position under Assets. Retained earnings are the company's retained trading profits. Retained earnings are also known as revenue reserve, Dividend payments to shareholders reduce retained earnings.
Answer
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(274 Votes)
Jemima
Professional · Tutor for 6 years
Answer
Retained earnings appear in the statement of financial position under Assets.
Explanation
## Step1: First, we have to identify the characteristics or behaviors of "Retained Earnings" as presented in the question and examine which one of them is incorrect based on the information.## Step 2: Analyzing each statement, we can determine which statement is incorrect. 1. Retained earnings do form part of shareholders equity in the statement of financial position.2. They indeed represent a source of internal finance for companies. 3. However, retained earnings do not appear in the statement of financial position under "Assets," they are part of the equity section. Therefore, this statement is incorrect.4. The role of retained earnings as the company's retained trading profits is accurate.5. The term "revenue reserve" is indeed another name for retained earnings.6. It is a fact that dividend payments to shareholders reduce retained earnings. ## Step 4: Given the above examination the correct statement is that retained earnings are part of equity and not shown under assets in the financial situation of a Company.