FINANCIAL ACCOUNTING

&
REPORTING
(Fundamentals)

ZEUS VERNON B. MILLAN

Chapter 16: Accounting for Dividends (FAR
by: Millan)
 Chapter 16
Accounting for Dividends
Learning Objectives
1. Account for dividends.

Chapter 16: Accounting for Dividends (FAR

by: Millan)
 Retained earnings
• Retained earnings represent the cumulative profits (net of
losses, distribution to owners, and other adjustments)
which are not yet distributed as dividends but rather
retained to be reinvested in the business or to settle debt.

• Total retained earnings may consist of:

1. Unrestricted – available for future distribution as dividends
2. Appropriated (Restricted) – not available for distribution
unless the restriction is subsequently reversed.

Chapter 16: Accounting for Dividends (FAR

by: Millan)
 Distributions to owners

1. Cash dividends – distributions in the form of

cash.
2. Property dividends – distributions in the form
of noncash assets.
3. Share dividends (bonus issue or stock
dividends) – distributions in the form of the
entity’s own shares.

Chapter 16: Accounting for Dividends (FAR

by: Millan)
Dates relevant to the accounting for dividends
1. Date of declaration – the date when the board of directors
formally announces the distribution of dividends.
2. Date of record – the date on which the stock and transfer
book of the corporation is closed for registration. Only those
who are listed as of this date are entitled to receive
dividends.
3. Date of distribution – the date when the dividends declared
are distributed to the shareholders.

Chapter 16: Accounting for Dividends (FAR

by: Millan)
 Accounting for Cash dividends
• Only the outstanding shares are entitled to dividends.
• Outstanding shares are shares issued plus subscribed shares
minus treasury shares.

Chapter 16: Accounting for Dividends (FAR

by: Millan)
 Share dividends

• If the share dividends declared are considered

“small” share dividends (i.e., less than 20% of
the outstanding shares), the share dividends
are accounted for at fair value.
• If share dividends declared are considered
“large” share dividends (i.e., 20% or more of
the outstanding shares), the shares are
accounted for at par value.

Chapter 16: Accounting for Dividends (FAR

by: Millan)
 Preference shares

1. Preference in the distribution of assets in case of corporate

liquidation (preferred as to assets)
2. Preference in the distribution of dividends when declared
(preferred as to dividends)

Chapter 16: Accounting for Dividends (FAR

by: Millan)
 Liquidating Dividends
• Dividends declared out of capital, rather than from retained
earnings, are called liquidating dividends. Liquidating
dividends are normally declared only upon corporate
liquidation. However, the wasting asset doctrine permits
wasting asset corporations to declare dividends out of capital
during their existence.

Chapter 16: Accounting for Dividends (FAR

by: Millan)
 Share split

1. Split up occurs when old shares are cancelled and replaced by a

larger number of new shares but with a reduced par value (stated
value) per share.
2. Split down is the opposite of split up whereby old shares are
cancelled and replaced by a smaller number of new shares but
with an increased par value (stated value) per share.

Chapter 16: Accounting for Dividends (FAR

by: Millan)
 APPLICATION OF CONCEPTS

PROBLEM 2: FOR CLASSROOM DISCUSSION

Chapter 16: Accounting for Dividends (FAR by: Millan)

OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

Chapter 16: Accounting for Dividends (FAR

by: Millan)
END

Chapter 16: Accounting for Dividends (FAR

by: Millan)