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scrip dividend

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › scrip dividend

  • This topic has 4 replies, 2 voices, and was last updated 4 years ago by John Moffat.
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  • December 17, 2020 at 12:54 am #600155
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    sir again i do not understand how earning per share and share price will decrease after the scrip dividend issue ?

    Because if shares are issued as dividend then earnings remain unaffected. So how can EPS or share price fall?

    December 17, 2020 at 12:57 am #600156
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    Also how does scrip dividend convert retained earnings into permanent share capital?

    December 17, 2020 at 9:13 am #600176
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54738
    • ☆☆☆☆☆

    A scrip dividend is giving shareholders more shares instead of giving them a cash dividend.

    If they issue more shares then there are more share in issue and so total earnings will not reduce, the earnings per share will reduce. Similarly if the same company has more shares then the market value per share will be lower.

    Any dividend reduces retained earnings. If it is paid in cash then cash also reduces. If it is paid as shares then share capital increases.

    December 19, 2020 at 2:44 am #600268
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    Also how does scrip dividend convert retained earnings into permanent share capital?

    so as far as your answer to the above statement is concerned, are you trying to suggest that share capital (and share premium reserve) increase at the cost of reduction of retained earnings reserve, even if the dividend is in the form of top-up of scrips(scrip-dividend)?

    December 19, 2020 at 7:23 am #600282
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54738
    • ☆☆☆☆☆

    I have already given you the answer to this.

    A scrip dividend is an issue of new shares. So retained earnings fall (as they do with any form of dividend) and share capital increases (because there are more shares in issue).

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