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How and when do dividends appear in financial statements?
Never show dividends on SOPL. Clear.
SOFP: Retained earnings reduced by dividends are actually paid in the year. (Not shown separately). Clear.
But the question 4 of Chapter 13 is very confusing. Let s say the correct answer as is because the actual amount of dividends did not appear in the SOFP, only the amount of retained earnings included it. But the explanation is the following: Dividends only appear in SOFP if they have been approved before the end of the year, but they have not yet been paid.
I could nowhere find a reference for this statement, neither in the lectures nor in the notes. If the statement is true how exactly dividends appear in the statement than?
Can you please clarify?Thank you
It is true, but refers to the situation where the dividends have been declared and have been voted on by the shareholders. It is obviously impossible for the dividends to then be paid immediately – there is bound to be a short time period before the money goes out.
If that were the case then the dividends would be recorded – they would appear in the SOCE and as a current liability in the SOFP.However, that is a very unlikely situation in real life and will not be relevant in the exam. I will remove the comment so as to remove confusion 🙂
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