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Hi there, i am new to the management accountant world and i have a very difficult manager that doesn’t help me with anything.
he has tasked me with finding out how to account for a “special dividend” payment that we received. He hasn’t given me much guidance apart from saying to look at the company’s website to see what they say about it.
i can’t find anything on the matter.
is anyone able to give me some help?
This is not really covered in ACCA but a “special dividend” is not accounted for any differently to a normal dividend. Companies pay out special dividends when they want to to distribute excess profits or profits from one off events to shareholders, but don’t want to set the expectation of that being the normal dividend going forward. This is because volatile dividends can cause swings in the share price.
For example let’s say a company’s last dividend was £1 per share, and their normal dividend growth rate is 5%. If they sell part of the business for a profit and want to distribute that to shareholders at 20p per share, they could use a special dividend to do that. That way the shareholders expect their next dividend to be £1.05 (£1 * 105%) not £1.26 ((£1 + 20p) * 105% ).
You would account for the dividend in the same way you would any other dividend from this company.
thank you for this, could you explain the double entry i should have for this?
is it balance sheet to balance sheet?does this mean i dont need to look into how the company deals with special dividends?
The double entry depends on whether the your company you are accounting for is part of a group and whether the company you received the dividend from is a trade investment, associate or subsidiary, among other things.
ok, slightly more complex than i expected. I think we are accounting for it in the UK accounts ( not the group ones) and the company re received it from is a soft drink company. does that help things?
Could just be Cr Investment Income (P&L) Dr Cash (BS)?
I’ll caveat that though by saying a. I’m not qualified so you shouldn’t take my opinion as fact b. I don’t know the specifics of your company’s situation and c. I don’t know whether you’re reporting under IFRS, UK GAAP or something else
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