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Hi,
If a question states :
Memo (who is the parent) has paid a dividend of 8million during the financial year and this is not included in profit and loss.
What action would I take from this point.
I assumed I’d
Debit p&l 8m
Credit retained earnings 8mHowever in the standard answer it doesn’t do this and the 8m doesn’t appear anywhere in the answer.
Is this a red herring information. I know dividends from subs etc are taken out upon consolidation. But unsure in this scenario what the rule would be.
Any clarity would help, although I do understand without seeing the question and answer this may be difficult.
Didn’t understand this either as why we didn’t do anything for this dividend, can you plz explain Sir Mike 🙂
“I assumed I’d
Debit p&l 8m
Credit retained earnings 8m”A credit to retained earnings is INCREASING retained earnings!
Dividends do not appear within a Profit or Loss account (this is basic F3 stuff!) They are an appropriation of profits and feature within a Statement of Changes in Equity
If you were given the relevant information (and I too do not have the question available) you would see that retained earnings at the end of last year, when added to this year’s profit for the year from the last line of the Profit or Loss account, does NOT give the retained earnings figure to carry forward into next year. The reason is because of the dividend which has been paid out (or even just proposed, but in that case it would appear as a current liability)
OK?
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