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Dear Sir,
I have a question concerning Question 376 F3 Kaplan KitExtracts from the accounting records of Andratx Co relating to the year ended 31 December 2006 are as follows
Revaluation Surplus $230,000
Ordinary interim divide paid $12000
Profit before tax $178000
Estimated tax liability for year $45000
8% $1Preference share $100,000
Under provision for tax in previous year$5,600
Proceeds of issue of 2000 $1 ordinary shares $5000
Final ordinary dividend proposed $30,000The correct answer is $350,400. This answer does not account for the final dividend proposed. I assume that the final dividend was declared within the year end, therefore a double entry of Dr RE/Cr Dividend payable was created. That means there should be a further deduction of $3000 in the RE and the answer should be $312,400.
I am looking forward to your explanation.
Thank you!!!Dividends are recorded when they are actually paid, not when they are proposed.
Do watch my free lectures on this. (The lectures are a complete free course for paper FA and cover everything needed to be able to pass the exam well 🙂 )
Dear Sir,
I want to ask if there is any difference between “Dividends proposed” and “Dividends declared”? Is “Dividends declared” more certain to be paid to shareholders?In this article 4.4.2, I found that dividends should be recorded when they are “declared” with a double entry of Dr RE/Cr Dividends payables on the “declaration date”. So in this case, is there a reduction in RE in the Statement of Change in Equity??
I look forward to your reply.
Thank you Sir !!!You are correct, but the question does not mention dividend declared. It says ‘dividend proposed’, which is not the same. The proposed dividend does not become certain until it has been voted on and is not recorded in the financial statements until it become certain.
Again, I do explain this in my free lectures!!
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