During the year, the company identified that a dividend recorded in the prior financial year had been overstated by £9,185.62. The dividend had been incorrectly charged to the Director’s Loan Account, resulting in an overstatement of liabilities and a corresponding understatement of retained earnings at the prior year end.
As dividends are appropriations of profit rather than expenses, this error has been corrected by adjusting the opening balance of retained earnings and reducing the Director’s Loan Account liability in the current year.
The adjustment does not affect the previously reported profit or loss or total comprehensive income for the prior year. In accordance with FRS 102 Section 10 – Accounting Policies, Estimates and Errors, comparative figures have not been restated, as the misstatement related solely to equity and liabilities and does not impact prior‑period performance.