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Hello sir,
The accounting treatment of the dividends is a bit confusing to me, so I did a little research also on the Internet. Many sources claim that the amount of the dividends to be paid is treated as a current liability (increase of Dividends payable account) and when the actual payment happens the current liability account is closed. If that is true, would it be right this operation to have an impact on the SOFP at the year-end too?
As far as I know, current liability treatment, sometimes, is relevant for Preference Shares if they are reedemable within one year, because these dividends have fixed % attached to them (let’s say 20000_7% redeemable preference shares). The company does not have to (but can if directors decided so) pay Ordinary Dividends that’s why it is not liability in the SoFP
Does Revenue Reserve Contain dividends ,I am confused .I got this that Retained Earnings is the Called the final amount which should be added at the end, after it has Already deducted the Dividends for the Year.
Retained earnings is a revenue reserve.
It increases each year by the profits less the dividends i.e. the amount retained.
Sir, why are dividends not agreeed upon not treated in the same way as contingent liabilities?
Because we treat them the way that the Financial Reporting Standards tell us to treat them 馃檪
The reason is because dividends go to the owners of the company (and can always be cancelled), whereas other liabilities (whether contingent or not) are liabilities to those external to the company.