O-LevelAccountingAnalysis and interpretation7707/12 · Oct/Nov 2020 · Q311 Mark

AB Limited and CD Limited both started business on 1 January 2019 with an ordinary share capital of $100000. Neither company had any debentures or loans. Both companies had the same profit in 2019. Only AB Limited paid a dividend. The return on capital employed (ROCE) was calculated using closing capital employed. Which statement about AB Limited's ROCE is correct when compared to that of CD Limited?

AIt is higher because the dividend reduced retained earnings.

BIt is lower because the dividend reduced capital employed.

CIt is lower because the dividend reduced the profit for the year.

DIt is the same as that of CD Limited.

✓ Correct answer

A: It is higher because the dividend reduced retained earnings.

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Topic: Analysis and interpretation, O-Level Accounting (syllabus 7707). Multiple choice, 1 mark.
Source: O-Level Accounting, Oct/Nov 2020 Paper 1 Variant 2, question 31.

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