Dividends Declared

[Shunmas]

Hi all !

I was going through a company's annual report and came across the following note:

"During the year, the company paid dividends of 21.25 million as resolved by the board of directors (bod)"

I can see the the above dividends paid in cash in cash flows statement.

But there is another note below the above one, which is confusing me in terms of journal entry and presentation in financial statements.

"Subsequent to the year end, the bod of the company has recommended in its meeting held on 23 Feb 2013 (company's year end is 31 Dec 2012) the distribution of cash dividends of 26.56 million"

I don't see these new dividends anywhere in the financial statements. Also what is the journal entry for this transaction (declaring dividends) ?

I would be thankful for your kind help.

 

[David Griffiths]

The clue is in the question. "subsequent to the year end"

 

[Shunmas]

So we will just disclose these new dividends by way of a note in financial statements and no journal entry is passed ?

Thanks

 

[teddys]

There are two types of dividends: interim and final.

Interim: approved by the directors - so paid within the year and accounted for.

final: recommended by the directors and declared by the shareholders. No need to pass any journal entry unless the shareholders' resolution is specific that the dividend is due and payable on the last day of the accounting year.

 

[Shunmas]

There are two types of dividends: interim and final.

Interim: approved by the directors - so paid within the year and accounted for.

final: recommended by the directors and declared by the shareholders. No need to pass any journal entry unless the shareholders' resolution is specific that the dividend is due and payable on the last day of the accounting year.

Thank you for your reply Teddys.

I read it just now:

Only the interim dividends are accounted for in the year (for which we are prepaying the accounts for, lets say 2010) and there will be no accounting for simply declaring dividends, which were declared in 2011)

But since dividends are declared in the next year (2011), the following journal entry is made:

Dr....Retained Earnings
Cr....Dividends Payable

When paid in cash:

Dr...Dividends Payable
Cr..Cash/Bank

Am I right my friend ?

I searched and found it on internet.




Many many thanks

 

[teddys]

Well, it goes like this:

Accounting year - 2010

AGM held on say 30 April 2011. On that date the shareholders pass an ordinary resolution declaring the dividend due and payable on 30 April 2011.

So your first entry on 30 April will be as follows;

Dr Dividend a/c (this is shown as an appropriation of the profits within the financial statements)

Cr Dividend payable a/c

The second entry is correct.