AP Module 3 Prof. Francis H.

Villamin

AUDIT OF SHAREHOLDERS’ EQUITY

AUDIT OBJECTIVES:

EXISTENCE - to determine the validity of the recorded shareholders’ equity balances and whether the
transactions actually occurred.

Audit Procedure:
a. Obtain a schedule of shareholders’ equity accounts and reconcile to the general ledger balances
b. Review authorization and terms of share issues
c. Confirm outstanding shares with transfer agent or registrar
d. Inspect share certificate books
e. Inspect shares held in the treasury

RIGHTS AND OBLIGATIONS - to determine whether the entity has the authority to execute the
shareholders’ equity transactions.

Audit Procedure:

a. Review articles of incorporation and by laws

COMPLETENESS - to determine whether recorded shareholders’ equity accounts reflect all data that
should be recorded.

Audit Procedure:
a. Perform analytical procedures

VALUATION AND ALLOCATION - to determine whether the shareholders’ equity balances are shown at
the proper stated amounts in accordance with PAS/PFRS

Audit Procedure:
a. Vouch share capital entries, dividend entries and Accumulated Profits entries.

PRESENTATION AND DISCLOSURE - to determine whether shareholders’ equity accounts are properly
presented and classified in the financial statements in accordance with PAS/PFRS.

Audit Procedure:
a. Review minutes of board of directors’ and shareholders’ meetings for share options and dividend
restrictions.
b. Evaluate financial statement presentation and disclosure for shareholders’ equity accounts.

SHAREHOLDERS’ EQUITY
➢ Definition:
Shareholders’ equity is the residual interest in the assets of an enterprise after deducting all its
liabilities.

➢ Measurement:
The amount at which equity is shown in the Statement of financial position is dependent on the
measurement of assets and liabilities.

TREASURY SHARE
➢ Definition:
Treasury shares are share capital which have been issued and fully paid for, but subsequently
reacquired by the issuing corporation by purchase, redemption, and donation or through some
other lawful means, but not cancelled.
AP Module 3 Audit of Shareholders’ Equity 2

Legal limitation on treasury shares

The Corporation Code provides that “no corporation shall redeem, repurchase or reacquire its own
shares, of whatever class, unless it has adequate amount of unrestricted accumulated profits to
support the cost of said shares.”

Acquisition:
Acquisition of treasury share is recorded at cost irrespective of whether these are acquired below or
above par value.
1. If acquired for cash, cost is equal to the amount of cash payment.
2. If acquired for non cash consideration, the cost is usually measured by the recorded amount or
book value of the non-cash asset surrendered.

Resale/Reissuance of Treasury share

➢ At more than cost
The Treasury share account is credited for the cost of the shares sold and the excess of reissue
price over cost is credited to APIC or Share premium from Treasury shares.

➢ At less than cost

Excess of cost over reissue price shall be charged to the following order of priority:
1. Share premium from Treasury shares only to the extent of its balance on the same class of
Share.
2. Accumulated Profits or Accumulated Profits account.

Retirement of Treasury share

a. Share capital account is debited at par value or stated value
b. Treasury share account is credited at cost
c. If the retirement results in a gain (par value exceeds cost) such gain shall be credited to Share
premium from treasury shares.
d. If the retirement results in a loss (cost exceeds par value) such loss shall be debited to the
following order of priority:
1. Share premium to the extent of the credit when the Share was originally issued
2. Share premium from treasury Shares transactions
3. Retained Earnings or Accumulated Profits account

RIGHTS ISSUE
Share rights are granted to existing shareholders to enable them to acquire new shares at a specified
price during a specified period. New share issues must be offered first to the existing shareholders in
proportion to their shareholdings before they are offered to the general public so that the existing
shareholders can maintain their ownership interest in the corporation.

SHARE WARRANTS - certificates or instruments evidencing ownership of Share rights.

SHARE WARRANTS ISSUANCE

1. Warrants issued alone
Memorandum entry is prepared showing the number of rights issued to shareholders and the number
of shares that can be purchased through the exercise of the rights.

2. Warrants issued with bonds

When share warrants are issued together with bonds, an amount equal to the market value of the
bonds ex warrant is assigned to the bonds regardless of the market value of the warrants and the
residual interest or the remainder of the issue price is allocated to the warrants.

3. Warrants issued with Preference shares

When share warrants are issued together with preference shares, the issue price is allocated between
the preference share and the warrants on the basis of their market values.

➢ If only one market value is given, allocate to the security with a known market value an amount
equal to its market value and the balance is allocated to the security with an unknown market
value.
➢ If both market values are unknown, the basis of the allocation would be the market value of the
ordinary share claimable under the warrants.

SHARE BASED COMPENSATION

This is a compensation arrangement established by the entity whereby the entity’s employees shall receive
share capital in exchange for their services or the entity incurs liabilities to the employees in amounts
based on the price of its shares.
AP Module 3 Audit of Shareholders’ Equity 3

ACCOUNTING FOR SHARE BASED COMPENSATION

A. EQUITY SETTLED - equity securities are issued for services received e.g. share options.

➢ SHARE OPTION - privilege granted to key officers and employees of the company as part of their
remuneration package to acquire share capital during a specified period upon fulfillment of certain
conditions at a specified price and is conceived as an additional compensation.

➢ MEASUREMENT OF COMPENSATION
1. Fair value method - compensation is equal to the FMV of the share option on the date of the
grant.
2. Intrinsic value method - compensation is equal to the excess of the market value of the
share on the date of the grant over the option price.

➢ RECOGNITION OF COMPENSATION
1. Share option vest immediately - the enterprise shall recognize the compensation
expense in full since the employee is not required to complete a specified period of service
before the option can be exercised.

2. Share option does not vest immediately - the enterprise shall not recognize the
compensation expense until the employee completes a specified service period.
Compensation expense is spread out from the date of the grant to the date on which the
options can first be exercised.

➢ ACCELERATION OF VESTING:
If an entity cancels or settles a grant of share options during the vesting period, the entity shall
account for the cancellation or settlement as an acceleration of vesting.

B. CASH SETTLED - liabilities are incurred for services received e.g. share appreciation rights
because the employee is entitled to receive cash which is equal to the excess of the market value
of the entity’s share over a predetermined price for a stated number of shares .

SHARE APPRECIATION RIGHT

PFRS 2 provides that for cash settled share-based compensation, the entity shall measure the
services acquired and the liability incurred at the fair value of the liability.

This entitles an employee to receive cash equal to the excess of the market value of the
company’s Share over a predetermined price for a stated number of shares. Therefore, share
appreciation right is an obligation on the part of the company to pay cash in the future, which is on
the exercise date.

The entity shall remeasure the fair value of the liability at each reporting date and at the date of
settlement until the liability is settled. Changes in fair value shall be recognized in profit or loss for
the period.

DIVIDENDS - dividend is a pro rata distribution, by a corporation to the shareholders, based on shares of a
particular class and usually represents a distribution of earnings.

Types of dividend distribution

TYPES AMOUNT CHARGED TO ACCUMULATED PROFITS
1. Cash Amount declared
2. Property FMV
3. Share Dividend or Bonus issue Small (less than 20%) Fair value of the shares
distributed or par or stated value if higher than fair value

Large (20% or more) Par or stated value of the shares

distributed

4. Cash in lieu of Share dividends -the amount to be charged to Accumulated Profits

should be equivalent to the optional cash dividend.

5. Liability dividends -are deferred cash dividends resorted to by the

corporation because cash is insufficient to cover working
capital requirements.

6. Liquidating dividend Dividend out of capital

7. Treasury shares as dividend If treasury shares are reissued as dividends, the

cost of the shares shall be charged to Accumulated
Profits.
 AP Module 3 Audit of Shareholders’ Equity 4

MULTIPLE CHOICE - THEORY

1. The client declared a 3 for 1 Share split during the year under audit. The auditor should
a. Confirm with each Shareholder the amount of shares held at the year-end date.
b. Examine Board of Directors minutes for authorization.
c. Ascertain that the SEC was notified of the split.
d. Prepare the note to the financial statements describing the split.

2. A corporation may obtain treasury shares

a. Through a share split.
b. In order to comply with SEC regulations.
c. Because they are needed for employee share option plans.
d. From the BSP.

3. When no independent share transfer agents are employed and the corporation issues its own share and
maintains share records, canceled share certificates should
a. Be defaced to prevent re-issuance and attached to their corresponding stubs.
b. Not be defaced but segregated from other share certificates and retained in a canceled
share certificates file.
c. Be destroyed to prevent fraudulent re-issuance.
d. Be defaced and sent to the secretary of state.

4. Share splits
a. Are required to be confirmed by the auditor.
b. Result in the corporation obtaining additional funds.
c. Increase the dividend rate per share.
d. Have no effect on total shareholders’ equity.

5. The client issued new share during the year at an amount above par. The auditor is verifying that the
amount of par was allocated to the capital Share account and the remainder was credited to the paid-in-
excess account. This procedure
a. Primarily supports the completeness assertion.
b. Is a required audit procedure.
c. Primarily addresses the valuation or allocation assertion.
d. Substitutes for sending confirmations to Shareholders.

6. Which of the following pieces of information is most important when auditing shareholders' equity?
a. Changes in the capital Share account are verified by an independent Share transfer agent.
b. Share dividends and/or Share splits during the year were approved by the shareholders.
c. Share dividends are capitalized at par or stated value on the dividend declaration date.
d. Entries in the Capital Share account can be traced to the minutes of the board of directors.

7 Which of the following is the best method to test the fairness of the amount of dividend income?
a. Comparing dividends in the cash receipts journal with a standard financial reporting service's
record of dividends.
b. Comparing dividends recorded in the accounting records with amounts appearing on BIR Form.
c. Tracing recorded dividend income to the cash receipts journal.
d. Utilizing analytical procedures and statistical sampling to test dividend income as recorded in the
general journal.

8. Issuances of a client’s Ordinary Share should be traced to the

a. Cash disbursements journal.
b. Numbered Share certificates.
c. Dividends journal.
d. Minutes of the board of directors.

9. The CPA's examination normally need not include

a. Determining that dividend declaration is in compliance with debt agreements.
b. Tracing the authorization for the dividends from the directors' meetings.
c. Testing the propriety of the payment to the individual shareholders.
d. Detailed checking from the dividend payment list to the capital share records.

10. During an audit of an entity’s shareholders’ equity accounts, the auditor determines whether there are
restrictions on Accumulated Profits resulting from loans, agreements, or law. This audit procedure most
likely is intended to verify management’s assertion of
a. Completeness c. Presentation and disclosure
b. Existence d. Valuation

11 All corporate share transactions should ultimately be traced to the

a. Minutes of board of directors.
b. Cash receipts journal.
c. Cash disbursements journal.
d. Numbered share certificates.
 AP Module 3 Audit of Shareholders’ Equity 5

12 ,When a client company does not maintain its own share records, the auditor should obtain written
confirmation from the transfer agent and registrar concerning
a. Restriction on the payment of dividends.
b. The number of shares issued and outstanding.
c. Guarantees of preference share liquidation value.
d. The number of shares subject to agreements to repurchase.

13 The primary responsibility of a bank acting as registrar of share capital is to

a. Ascertain that dividends declared do not exceed the statutory amount allowable on the state of
incorporation.
b. Account for share certificates by comparing the total shares outstanding to the total of shareholders’
subsidiary ledger.
c. Act as an independent third party between the board of directors and outside investors concerning
mergers, acquisitions and the sale of treasury shares.
d. Verify that share is issued in accordance with the authorization of the board of directors and the
articles of incorporation.

14. An audit program for the examination of the accumulated profits account should include a step that
requires verification of the
a. Market value used to charge accumulated profits to account for a 2-1 share split.
b. Approval of adjustment to the beginning balance as a result of a write-down of accounts receivable.
c. Authorization for both cash and share dividends.
d. Gain or loss resulting from disposition of treasury shares.

15. Auditors will obtain evidence regarding board of director approval of which of the following transactions?
a. The creation of and dealings with special purpose entities.
b. Customer purchases over P50,000.
c. The purchase of a two-month certificate of deposit.
d. Payment of employee salaries.

16. Benedict Diaz, CPA is auditing the financing cycle of Top Hat, Inc. He reviews the articles of incorporation
and bylaws of Top Hat in relation to the company's ordinary shares to determine proper disclosure of
a. Authorized shares and par value.
b. Issued shares and treasury shares outstanding.
c. Number of shares reserved for Accumulated Profits.
d. State of incorporation and officers.

17. The auditor will examine proceeds and trace them to recorded amounts of the par value of ordinary shares
to determine that
a. shares exist and have valid share certificates.
b. proceeds have been properly distributed between ordinary shares and additional paid-in capital.
c. dividends have been issued in accordance with the share indenture agreement as approved by
the board.
d. shareholders actually have the rights to shares issued by the company in exchange for
subscribed funds.

18. Zion Wilderness, Inc. is a public company that does not maintain its own share books. How will the auditor
most likely establish the number of shares outstanding for testing purposes?
a. Inquiry of management.
b. Discussions with the share trustee.
c. Confirmation with the transfer agent.
d. Examination of proceeds from current share issuance.

19. For internal control purposes, the audit team may consider whether dividends declared and paid have
been approved by
a. executive management.
b. the transfer agent.
c. the shareholders.
d. the board of directors.

20. Which one of the following disclosures is not required for shareholder’s equity in the financial statements?
a. classes of shares outstanding.
b. number of shares authorized, issued and outstanding.
c. price-to-earnings ratio.
d. existence of shares warrants.
 AP Module 3 Audit of Shareholders’ Equity 6

21. In an examination of shareholder’s equity, an auditor is most concerned that

a. Capital share transactions are properly authorized.
b. Share splits are capitalized at par or stated value on the dividend declaration date.
c. Dividends during the year under audit were approved by the shareholders.
d. Changes in the accounts are verified by a bank serving as a registrar and share transfer
agent.

22. In audit of a medium-sized manufacturing concern, which one of the following areas can be expected to
require the least amount of audit time?
a. Owner’s equity b. Assets c. Revenue d. Liabilities

23. When a corporate client maintains its own share records, the auditor primarily will rely upon
a. Confirmation with the company secretary of shares outstanding at year-end.
b. Review of the corporate minutes for data as to shares outstanding.
c. Confirmation of the number of shares outstanding at year-end with the appropriate state
official.
d. Inspection of the share book at year-end and accounting for all certificate numbers.

24 if the auditee has a material amount of treasury share on hand at year-end, the auditor should
a. Count the certificates at the same time other securities are counted.
b. Count the certificates only if the company had treasury share transactions during the year.
c. No count the certificates if treasury share is a deduction from shareholders’ equity.
d. Count the certificates only if the company classifies treasury share with other assets.

25 In performing tests concerning the granting of share options, an auditor should

a. Confirm the transaction with the Securities and Exchange Commission.
b. Verify the existence of option holders in the entity’s payroll records or share ledgers.
c. Determine that sufficient treasury share is available to cover any new share issued.
d. Trace the authorization for the transaction to a vote of the board of directors.

MULTIPLE CHOICE QUESTIONS

PRACTICAL

Problem No. 1
Apollo Corporation began operations on January 1, 2024. The company was authorized to issue 60,000
shares of P10 par value ordinary share and 120,000 shares of 10%, P100 par value convertible preference
share.

In connection with your audit of the company’s financial statements, you noted the following transactions
involving shareholders’ equity during 2024:

Jan. 1 Issued 1,500 shares of ordinary share to the corporation promoters in exchange for
property valued at P510,000 and services valued at P210,000. The property costs
P270,000 3 years ago and was carried on the promoters’ books at P150,000.

Jan. 31 Issued 30,000 shares of convertible preference share at P150 per share. Each share
can be converted to five shares of ordinary share. The corporation paid P225,000 to
an agent for selling the shares.

Feb. 15 Sold 9,000 shares of ordinary share at P390 per share. The corporation paid issue
costs of P75,000.

May 30 Received subscriptions for 12,000 shares of ordinary share at P450 per share.

Aug. 30 Issued 2,100 shares of ordinary share and 4,200 shares of preference share in
exchanged for a building with a fair market value of P1,530,000. The building was
originally purchased for P1,140,000 by the investors and has a book value of
P660,000. In addition, 1,800 shares of ordinary share were sold for P720,000 cash.

Nov. 15 Payments in full for half of the subscriptions and partial payments for the rest of the
subscriptions were received. Total cash received was P4,200,000. Shares of stock
were issued for the fully paid subscriptions. The balance is collectible next year.

Dec. 1 Declared a cash dividend of P10 per share on preference share, payable on December
31 to shareholders of record on December 15, and P20 per share cash dividend on
ordinary share, payable on January 15, 2025 to shareholders of record on December
15.

Dec. 31 Paid the preference share dividend.

Net income for the first year of operations was P1,800,000.

AP Module 3 Audit of Shareholders’ Equity 7

QUESTIONS:

Based on the above and the result of your audit, determine the following as of December 31, 2024:

1. Ordinary share

2. Paid-in capital in excess of par value of preference share

3. Paid-in capital in excess of par value of ordinary share

4. Accumulated profit

5. Total shareholders’ equity

Problem No. 2:
In connection with your audit of the Skynet Corporation, you were able to obtain the following information
pertaining to the corporation’s equity accounts.

Skynet Corporation has 32,000 shares of P2 par value ordinary shares authorized. Only 75% of these
shares have been issued, and of the shares issued, only 22,000 are outstanding. On December 31, 2023,
the shareholders’ equity section revealed that the balance in Paid-In Capital in Excess of Par Value –
Ordinary was P832,000, and the Accumulated Profits balance was P220,000. The Treasury share was
purchased at an average price of P37.50 per share.

During 2024, Skynet had the following transactions:

Jan. 15 Skynet issued, at P55 per share, 1,600 shares of P50 par, 5% cumulative preference shares;
4,000 shares are authorized

Feb. 01 Skynet sold 3,000 shares of newly issued P2 par value ordinary share at P42 per share.

Mar. 15 Skynet declared a cash dividend on ordinary share of P0.15 per share, payable on April 30 to
all shareholders of record on April 1 Date of Declaration- reduce RE
Date of Record- who are entitled to receive Div
Date of Payment- Cash Div
Apr. 15 Skynet reacquired 400 shares of its ordinary share for P43 per share.

Employees exercised 2,000 share options granted in 2023. When the options were granted,
each option entitled the employees to purchase 1 share of ordinary share for P50 per share.
The share price on the date of grant was also P50 per share. Skynet issued new shares to
the employees.

May 01 Skynet declared a 10% share dividend to be distributed on June 1 to shareholders of record
on May 7. The market price of the ordinary share was P50 per share on May 1.

31 Skynet sold 300 treasury shares reacquired on April 15 and an additional 400 shares costing
P15,000 that had been on hand since the beginning of the year. The selling price was P57
per share.

Sept.15 The semiannual cash dividend on ordinary share was declared, amounting to P0.15 per
share. Skynet also declared the yearly dividend on preferred stock. Both are payable on
October 15 to shareholders of record on October 1.

Net income for 2024 was P100,000.

QUESTIONS:

Based on the above and the result of your audit, determine the balances of the following as of December
31, 2024:

1. Preference share

2. Ordinary share

3. Additional paid in capital

4. Treasury share

5. Total accumulated profits

AP Module 3 Audit of Shareholders’ Equity 8

PROBLEM NO. 3

The following data were compiled prior to preparing the balance sheet of the Rover Corporation as of
December 31, 2024:

Authorized ordinary shares, P100 par value P4,000,000

Cash dividends payable 160,000
Donated capital 800,000
Gain on sale of treasury shares 80,000
Net unrealized loss on equity securities at other comprehensive income 96,000
Premium on capital shares 320,000
Premium on bonds payable 240,000
Reserve for bond sinking fund 400,000
Reserve for depreciation 600,000
Revaluation increment on property 800,000
Retained earnings, unappropriated 720,000
Subscribe capital shares 480,000
Shares subscriptions receivables 120,000
Shares warrants outstanding 200,000
Treasury shares, at cost 144,000
Unissued ordinary shares 800,000

REQUIRED:
Compute for the following:

A B C D
1. Ordinary shares issued P4,000,000 P3,200,000 P3,056,000 P3,680,000
2. Total share premium 1,400,000 320,000 1,320,000 1,200,000
3. Retained earnings -
appropriated 400,000 1,000,000 544,000 –
4. Total shareholders’ equity 6,760,000 6,640,000 6,480,000 6,240,000
5. Total legal capital 3,200,000 3,560,000 3,680,000 4,000,000

PROBLEM NO. 4

Following is the shareholders’ equity section of Vanguard Corporation’s statement of financial position at
December 31, 2023:

Ordinary shares, P10 par value; authorized

shares; issued and outstanding 900,000 shares P9,000,000 P9,000,000
Share premiums 750,000
Retained earnings 2,700,000
Total shareholders’ equity P12,450,000

Transactions during 2024 and other information relating to the shareholders’ equity accounts were as
follows:
• On January 26, Vanguard reacquired 75,000 shares of its Ordinary shares for P11 per share.

• On April 4, Vanguard sold 45,000 shares of its treasury shares for P14 per share.

• On June 1, Vanguard declared a cash dividend of P1 per share, payable on July 15, 2024 to
shareholders of record on July 1, 2024.

• On August 15, each shareholder was issued one shares right for each share held to purchase two
additional shares of shares for P12 per share. The rights expire on October 31, 2024.

• On September 30, 150,000 shares rights were exercised when the market value of the shares was
P12.50 per share.

• On November 2, Vanguard declared a two for one share split-up and charged the par value of the
shares from P10 to P5 per share. On November 20, shares were issued for the shares split.
AP Module 3 Audit of Shareholders’ Equity 9

• On December 5, 60,000 shares were issued in exchange for secondhand equipment. It originally cost
P600,000, was carried by the previous owner at a book value of P300,000, and was recently appraised
at P390,000.

• Net income for 2024 was P720,000.

QUESTIONS:

Based on the above and the result of your audit, determine the following as of December 31, 2024:

1. Ordinary shares

2. Total share premium

3. Unapproriated retained earnings

4. Total shareholders’ equity

PROBLEM NO. 5 – Various equity transactions

Your audit client, Apollo, Inc., is a public entity whose shares are traded in the over-the-counter market.
At December 31, 2023, Apollo had 3,000,000 authorized, P10 par value, ordinary shares, of which
1,000,000 shares were issued and outstanding. The equity accounts at December 31, 2023 had a
following balances.

Ordinary share capital P10,000,000

Share premium 3,750,000
Retained earnings 3,250,000

Transactions during 2024 and other information relating to the equity accounts were as follows:

• On January 2, 2024, Apollo issued at P54 per share, 50,000 shares of P50 par value, 9% cumulative
convertible preference shares. Each preference share is convertible into two ordinary shares. Apollo
had 300,000 authorized shares of preference shares. The preference share has a liquidation value
equal to its par value.

• On February 1, 2024, Apollo reacquired 10,000 ordinary shares for P16 per share.

• On April 30, 2024, Apollo sold 250,000, P10 par value, ordinary shares (previously unissued) to the
public at P17 per share.

• On June 15, 2024, Apollo declared a cash dividend of P1 per share on ordinary shares, payable on
July 15, 2024, to shareholders of record on July 1, 2024.

• On November 10, 2024, Apollo sold 5,000 treasury shares for P21 per share.

• On December 15, 2024, Apollo declared the yearly cash dividend on preference share, payable on
January 15, 2025, to shareholders of record on December 31, 2024.

• On January 20, 2025, before the books were closed for 2024, Apollo became aware that the ending
inventories at December 31, 2024 were understated by P150,000 (after tax effect on 2024 profit was
P90,000). The appropriate correction entry was recorded the same day.

• After correcting the beginning inventory, profit for 2024 was P2,250,00.

QUESTIONS:

Based on the above and the result of your audit, determine the following as of December 31, 2024:

1. Share premium

2. Unappropriated retained earnings

3. Treasury shares

4. Total equity

5. Book value per share of ordinary

AP Module 3 Audit of Shareholders’ Equity 10

PROBLEM No. 6

In analyzing the shareholders’ equity section of Galaxy Trading Company, the following information was
abstracted from the accounts of December 31:

Total profit since incorporation P 630,000

Total cash dividends paid 195,000
Proceeds from sale of donated stock 67,000
Total fair value of 10% share dividends distributed 45,000
Excess of proceeds over cost of treasury stock sold 105,000
Remaining cost of treasury shares at year-end 200,000
Realized revaluation surplus transferred to retained earnings 80,000

Required:

What should be the correct balance of retained earnings? How much of this balance is free for future
dividend declaration?

PROBLEM No. 7

The following is the Retained Earnings account of Mercury Corporation:

Debit Credit Balance

January 1, 2024 1,590,000 1,590,000
2024 Transactions
Transfer to reserve for plant
Expansion 150,000 1,440,000
Gain on sale of treasury shares 120,000 1,560,000
Unrealized gain on investments at
Fair value through OCI 80,000 1,640,000
Dividends declared 750,000 890,000
Profit for the year 860,000 1,750,000

Required:

What is the correct balance of the retained earnings account at December 31, 2024?

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