DFS: Accounting for Final Dividends - Two books say different
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Hi,
I have been using BPP and also Osborne books for this Junes DFS exam. I know that this query has cropped up before but I cant seem to remember the answer....or indeed if there was a definitive one.
Anyway:
How do you provide for the final dividend in the balance sheet - one book says you do and one says you dont as it would not have been confirmed by the board and would not be payable till next year anyway where it would be then shown in that years accounts only.
My understanding is that as a possible future liability it would be only shown as a footnote in the year end balance sheet *subject to approval and would not effect any of the figures for this year, unless it had been passed and approved within the trading year and therefore it would become a confirmed future liablity due within one year and as a result an entry for the dividend amount would need to be placed in the "current liablities (due within one year)" section of the B/S - is this correct?
When the past exam papers have stated to "provide" for the final dividend - are we to assume that the proposal has been passed and therefore an entry needs to be made as a curent liablity (Due within one year) in the B/S for the current years accounts or do we follow the assumption that as it is a proposal we only need put a footnote in - in other words do we account for it by including it as a liablity due (altering the B/S itself or just by virtue of a footnote at the conclusion of the B/S??)
Its getting really confusing so I'm hoping someone can help clear it up before next week!!!
Thanks in advance.
I have been using BPP and also Osborne books for this Junes DFS exam. I know that this query has cropped up before but I cant seem to remember the answer....or indeed if there was a definitive one.
Anyway:
How do you provide for the final dividend in the balance sheet - one book says you do and one says you dont as it would not have been confirmed by the board and would not be payable till next year anyway where it would be then shown in that years accounts only.
My understanding is that as a possible future liability it would be only shown as a footnote in the year end balance sheet *subject to approval and would not effect any of the figures for this year, unless it had been passed and approved within the trading year and therefore it would become a confirmed future liablity due within one year and as a result an entry for the dividend amount would need to be placed in the "current liablities (due within one year)" section of the B/S - is this correct?
When the past exam papers have stated to "provide" for the final dividend - are we to assume that the proposal has been passed and therefore an entry needs to be made as a curent liablity (Due within one year) in the B/S for the current years accounts or do we follow the assumption that as it is a proposal we only need put a footnote in - in other words do we account for it by including it as a liablity due (altering the B/S itself or just by virtue of a footnote at the conclusion of the B/S??)
Its getting really confusing so I'm hoping someone can help clear it up before next week!!!
Thanks in advance.
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Comments
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Re:DFS: Accounting for Final Dividends - Two books say different
As far as I know it is a non adjusting event that is disclosed a note and accounted for in the following year as you said above. It has to show as a cost in the accounts of the year it was paid(matching concept)
I think so anyway0 -
Re:DFS: Accounting for Final Dividends - Two books say different
The dividend has to be provided for before the balance sheet date for it to appear on the face of the balance sheet. If it is only a proposed final dividend then it just left as a note to the accounts.0 -
Re:DFS: Accounting for Final Dividends - Two books say different
If a dividend is proposed prior year end and it should be account for and shown as a liability in the balance sheet and retained earnings adjusted (income statement)
If after the year end then just disclose and no value required to be accounted for in current income statement or balance sheet.
Refer to IAS 10 for events before and after balance sheet date.
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Re:DFS: Accounting for Final Dividends - Two books say different
Thanks All,
Cleared it up...0