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    Retained Earnings Dividends

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    Lyka Faye Aggabao
    Retained earnings represent the cumulative balance of net income minus any dividend distributions or other adjustments. They can be unappropriated and available for dividends, or appropriated for specific purposes like expansion and not available for dividends. Dividends are distributions of earnings to shareholders proportionate to their shareholdings and can be paid in cash, property, liability forms, or stock. The declaration date sets the dividend obligation, while the record date sets which shareholders are entitled to payment, which occurs on the payment date. Property and stock dividends are accounted for differently than cash dividends.

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    Retained Earnings Dividends

    Uploaded by

    Lyka Faye Aggabao
    78 views3 pages
    Retained earnings represent the cumulative balance of net income minus any dividend distributions or other adjustments. They can be unappropriated and available for dividends, or appropriated for specific purposes like expansion and not available for dividends. Dividends are distributions of earnings to shareholders proportionate to their shareholdings and can be paid in cash, property, liability forms, or stock. The declaration date sets the dividend obligation, while the record date sets which shareholders are entitled to payment, which occurs on the payment date. Property and stock dividends are accounted for differently than cash dividends.

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    Retained earnings represent the cumulative balance of net income minus any dividend distributions or other adjustments. They can be unappropriated and available for dividends, or appropriated for specific purposes like expansion and not available for dividends. Dividends are distributions of earnings to shareholders proportionate to their shareholdings and can be paid in cash, property, liability forms, or stock. The declaration date sets the dividend obligation, while the record date sets which shareholders are entitled to payment, which occurs on the payment date. Property and stock dividends are accounted for differently than cash dividends.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    78 views3 pages

    Retained Earnings Dividends

    Uploaded by

    Lyka Faye Aggabao
    Retained earnings represent the cumulative balance of net income minus any dividend distributions or other adjustments. They can be unappropriated and available for dividends, or appropriated for specific purposes like expansion and not available for dividends. Dividends are distributions of earnings to shareholders proportionate to their shareholdings and can be paid in cash, property, liability forms, or stock. The declaration date sets the dividend obligation, while the record date sets which shareholders are entitled to payment, which occurs on the payment date. Property and stock dividends are accounted for differently than cash dividends.

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    Download as docx, pdf, or txt
    of 3

    RETAINED EARNINGS

    Dividends

    Retained earnings represent the cumulative balance of periodic net income or loss,
    dividend distributions, prior period errors, changes in accounting policy, and other
    capital adjustments.

    Retained earnings Account


    Dr Cr
    Deficit (normal balance)

    IFRS terms:
    Accumulated Losses Accumulated Profits

     Kinds of RE
    Unappropriated retained earnings Appropriated retained earnings
    represent that portion which is free and represent that portion which has been
    can be declared as dividends to restricted and therefore is not available for
    shareholders. any dividend declaration.

     Legal appropriation This arises from the fact that the legal capital cannot be
    returned to the shareholders until the entity is dissolved and liquidated.
     Contractual appropriation This arises from the fact that the terms of the bond
    issue and preference share issue may impose restriction on the payment of
    dividends. This is to ensure the eventual payment of the bonds and redemption of
    the preference share.
     Voluntary appropriation This is a matter of discretion on the part of the
    management. It may arise from the fact that management wishes to preserve the
    funds for expansion purposes or for covering possible losses or contingencies.

    Dividends are distributions of earnings or capital to the shareholder in proportion to


    their shareholdings.

    DIVIDENDS OUT OF EARNINGS


     Date of declaration is the date in which the directors authorize the payment of
    dividends to shareholders.
     Date of record is the date on which the stock and transfer book of corporation will
    be closed for registration. Only those shareholders registered as of such date are
    entitled to receive dividends.
     Date of payment is the date on which the dividend liability is to be paid.
    Note: The liability for dividend must be recognized on the date of declaration.

    Types of Dividends:
    Cash Dividends Property Dividends Liability Dividends Stock Dividends
    Distribution of Distribution of These are actually Distributions of
    earnings of the earnings of the entity deferred cash earnings of the
    entity to the to the shareholders in dividends. It may be entity in the form of
    shareholders in the the form of noncash in the form of bond the entity’s own
    form of cash. assets. and scrip. shares. (IFRS term
    “bonus issue”)

    Cash Dividends
    Date of Declaration Date of Settlement
    Retained Earnings xx Dividends Payable xx
    Dividends Payable xx Cash xx
    Property Dividends
    Measurement Settlement
     At the fair value of the asset to be  The difference between the carrying
    distributed. amount of the dividend payable and the
     At the end of each reporting period and carrying amount of the asset distributed
    at the date of settlement, the entity shall shall be recognized in profit or loss.
    review and adjust the carrying amount
    of the dividend payable with any If the fair value less cost to distribute is lower
    change recognized in equity as than the carrying amount of the asset at the end
    adjustment to the amount of of the reporting period, the difference is
    distribution. accounted for as impairment loss.

    Illustration: Property Dividend (taken from the book of Asuncion, Ngina, Escala)
    On November 1, 20x1, Unno Company declared Inventory as property dividend payable on
    February 15, 20x2. The carrying amount of the inventory is Php700,00.

    Date Fair Values (Php)


    November 1, 20x1 600,000
    December 31, 20x1 800,000
    February 15, 20x2 780,000

    Journal Entries
    November 1, 20x1 Retained Earnings(@Fair Value) 600,000
    Dividends Payable 600,000
    December 31, 20x1 Retained Earnings(Increase in Fair Value) 200,000
    Dividends Payable 200,000
    February 15, 20x2 Dividends Payable(Decrease in Fair Value) 20,000
    Retained Earnings 20,000
    # #
    Dividends Payable(@Fair Value) 780,000
    Inventory(@Carrying Amount) 700,000
    Gain on distribution(Balancing Figure) 80,000

     Choice of Either Noncash or Cash


    Measurement Settlement
     The entity shall estimate the dividend  The entity shall adjust the dividend
    payable by considering both the fair payable based on the alternative chosen
    value of each alternative and the through equity or retained earnings.
    associated probabilities of owners
    selecting each alternative.

    Illustration: Noncash or Cash Alternative (taken from the book of Asuncion, Ngina, Escala)
    On January 1, 20x1, Ddos Company had five outstanding ordinary shares. On December 31,
    20x1, Ddos declared dividends on the ordinary shares. The corporation decided to give the
    ordinary shareholders a choice between receiving a cash dividend of Php10,000 per share or a
    property dividend in the form of a noncash asset. Each noncash asset has a fair value of
    Php12,000. The corporation estimated that 60% of the ordinary shareholders will take the option
    of the cash dividend and 40% will elect for the noncash asset.

    Date of Declaration:
    Retained Earnings 54,000
    Dividend Payable 54,000

    Cash(5 x 10,000 x 60%) 30,000


    Noncash(5 x 12,000 x 40%) 24,000
    Total Dividends 54,000
    Date of Payment:
    *If shareholders opted to receive cash
    Dividend Payable 54,000
    Cash (5 x 10,000) 50,000
    Retained Earnings(balancing figure) 4,000

    **If shareholers opted to receive noncash


    Dividend payable 54,000
    Loss on distribution(balancing figure) 6,000
    Noncash (5 x 12,000) 60,000

    Share or Stock Dividend


     When share dividends are declared, the retained earnings are in effect
    capitalized, meaning, transferred to share capital.

     RE , Share Capital

    % Declared Small Dividend Large Dividend


    <20% of Outstanding shares 20% or more
    Amount to be declared Fair Value or par value, whichever Par value of Shares
    to RE is HIGHER
    Date of Declaration RE(@Fair Value) xx RE(@par) xx
    Share Div. Payable(@par) xx Share Div. Payable xx
    Share Premium(balance) xx
    Date of Redemption Share Div. Payable xx Share Div. Payable xx
    Share Capital xx Share Capital xx
    Share Dividend Payable is not a liability.

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