Dividends

EveT

Hi guys,

Mental block,doing a q and it has dividends proposed before year end and approved at agm post year end. What is the norm accounting treatment for dividends?? I know they don't get shown on soci and go through soce but what else do you do with them?!

Do you show them as a cl in sofp? In this case says no obligation so no but what are all the 'normal' double entry accounting entries for dividends under ias??

Thanks!!

SBWife

Under IAS dividends proposed and approved are disclosed in the FS they don't hit the actual accounts until they are paid.

This is different to Irish GAAP when under the old accounting they would run through the Income Statement in the year they were proposed.

EveT

So proposed unpaid dividends are only a note?

And what is the double entry for paid dividends?

I know this is v basic,gone blank!!

Thanks a mill

kennyb3

EveT wrote: »

So proposed unpaid dividends are only a note?

And what is the double entry for paid dividends?

I know this is v basic,gone blank!!

Thanks a mill

Dr dividends paid (P & L or I/S as known now)
CR Bank/Cash

EveT

So where is the relevance of dividends now going through soce??? Am confused :-(

HeinekenTicket

Dividends are recognised in financial statements at the point at which they become a liability i.e. the point at which the outflow of resources is effectively unavoidable.

At this point:
dr dividend charge (which is a deduction from retained earnings in SOCIE)
cr dividend liability

When dividend is paid:

dr dividend liability
cr bank

Under IFRS, there is no dividend expense in the income statement.

SBWife

HeinekenTicket wrote: »

Under IFRS, there is no dividend expense in the income statement.

Under IFRS you have a Statement of Comprehensive Income which does not include dividends, you then have a Statement of Changes in Equity which is where the dividend is accounted for.

And yes, it's just a note until it's paid.

backtothebooks

SBWife wrote: »

Under IFRS you have a Statement of Comprehensive Income which does not include dividends, you then have a Statement of Changes in Equity which is where the dividend is accounted for.

And yes, it's just a note until it's paid.

It's accounted for as Heinekenticket pointed out, when it becomes a liability; not when it's paid.

Taco Corp

HeinekenTicket wrote: »

Under IFRS, there is no dividend expense in the income statement.

That's not strictly true. It depends how the instrument is classified. With most funds for example, investors capital is classified as debt so in that case the dividends (or distributions) goes through the soci as a finance cost.

See page 5:
http://www.deloitte.com/assets/Dcom-Ireland/Local%20Assets/Documents/Investment%20management/ie_IM_IFRS%20ForIM_IllustrativeFinancialStatements_201012.pdf

HeinekenTicket

Surley wrote: »

That's not strictly true. It depends how the instrument is classified. With most funds for example, investors capital is classified as debt so in that case the dividends (or distributions) goes through the soci as a finance cost.

See page 5:
http://www.deloitte.com/assets/Dcom-Ireland/Local%20Assets/Documents/Investment%20management/ie_IM_IFRS%20ForIM_IllustrativeFinancialStatements_201012.pdf

You are right - my mistake. I was thinking only of equity instruments. If the instrument is classified as debt, the dividend is part of the finance cost in the SOCI. Thanks for pointing that out!

R0N BURGUNDY

so when does a dividend become a liability>? when they are announced?

actually - heres what wkipedia says:

Declaration date is the day the Board of Directors announces its intention to pay a dividend. On this day, a liability is created and the company records that liability on its books; it now owes the money to the stockholders. On the declaration date, the Board will also announce a date of record and a payment date

question - when working out WACC and shares are cum dividend, do u take off the expected dividend when doing the calculations for cost of equity?

is that the same as with debt/interest and cost of debt>?

HeinekenTicket

R0N BURGUNDY wrote: »

so when does a dividend become a liability>? when they are announced?

actually - heres what wkipedia says:

Declaration date is the day the Board of Directors announces its intention to pay a dividend. On this day, a liability is created and the company records that liability on its books; it now owes the money to the stockholders. On the declaration date, the Board will also announce a date of record and a payment date

Hold up Ron,

The situation above applies in the US where, as a general rule, the declaration by the directors does not have to be approved by shareholders.

However, in many jurisdictions (including Ireland), the general rule is that dividends can only be proposed by directors and must be approved by shareholders at the AGM before the dividend becomes a liability of the company. As such, the formal declaration of the dividend (which triggers recognition of the resultant liability) arises from the actions of the shareholders. In other words, the proposal of a dividend by directors (in Ireland) is merely an expression of an intention to do something, which under IFRS, is an insufficient basis for recognising a provision.

R0N BURGUNDY

ah right - liability from date of approval = sound.