A company has the following accounts: I Paid up capital
II Reserves
III Retained profits
IV Dividends payable
Return on equity is net profit divided by:
A) I only
B) I and II Only
C) I, II and III
D) 1, II, III and IV

Question

Quizplus · Accepted Answer

Return on equity (ROE) is calculated by dividing net profit by shareholders' equity, which includes paid up capital, reserves, and retained profits. Dividends payable is not included in the calculation of ROE as it is a liability, not an equity account. Therefore, the correct choice is C, which includes all three equity accounts.

A Company Has the Following Accounts: I Paid Up Capital