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Dividends paid aren’t shown on the Statement of Profit or Loss. Why?
They’re expenses, so… why not? (Dr Div. (Exp.), Cr Cash/CL)
But for instance, the following question suggests that dividends DO appear on the income statement? (SOP&L)
The following information is available about a company’s dividends:
2005 Sept. – Final dividend for the year ended 30 June 2005 paid (declared August 2005) —- 100,000
2006 March – Interim dividend for the year ended 30 June 2006 paid — 40,000
Sept. – Final dividend for the year ended 30 June 2006 paid (declared August 2006) — 120,000
What figures, if any, should be disclosed in the company’s SOP&L for the year ended 30 June 2006 and its SOFP as at that date?
———SOP&L————————- SOFP for the period liability
A $160,000 deduction —————-$120,000
B $140,000 deduction —————- nil
C nil —————————————$120,000
D nil ————————————— nilThe answer is apparently B.
I disagree. Should it not be D? (Nil in SOP&L)Dividends are certainly not expenses!!!
The business makes a profit, they then decide how much (if any) of the profit to give to the owners as dividend, but it does not make the profit any different!
The question you have typed out is in the test at the end of the chapter on limited companies in our free lecture notes.
If you look at the answers in the notes, then the correct answer is shown as D (not B).
Presumably you found this question somewhere else, in which case they have obviously printed the answer wrongly.
Many thanks!
Also, if the question does not specify if the preference shares being paid are redeemable or irredeemable, is there some common assumption?
Once more, thank you!
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