- October 19, 2015 at 9:25 pm #277670
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)October 20, 2015 at 4:12 am #277703
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 ————————————— nil
The answer is apparently B.
I disagree. Should it not be D? (Nil in SOP&L)October 20, 2015 at 7:40 am #277744
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!October 20, 2015 at 7:43 am #277747
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.October 21, 2015 at 8:59 pm #278268
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!October 22, 2015 at 7:50 am #278327
No – there is no common assumption.
If it is relevant then you will be told.
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