How To Calculate Retained Earnings With Assets And Liabilities

Retained Earnings can be calculated when the values of assets and liabilities are given by using Accounting Equation as shown below:

Assets  =  Liabilities  + Equity

Equity = Assets – Liabilities

After finding equity, we can find Retained Earnings by applying following formula (derived from Statement Of Changes In Equity) as shown below:

Retained Earnings  =  Equity - (Share Capital + Share Premium + Common Stock) + Transfer to Capital Reserves

Example: From the balance sheet of ABC company, the company has assets of $5,000,000 and liabilities $250,000. Share premium is $300. Calculate RE.

First of all, we need the value of equity then we can compute RE easily as shown below:

Equity =  $5,000,000 - $250,000 = $4,750,000

RE = $4,750,000 - $300 = $4,749,700