RETAINED EARNINGS REPORT

Topics: Dividend, Generally Accepted Accounting Principles, Stock Pages: 30 (873 words) Published: April 19, 2015
RETAINED EARNINGS
CHAPTER 19

DEFINITION:
Retained Earnings represents the
cumulative balance of:
 Periodic net income or loss
 Dividend distribution
 Prior periodic errors
 Changes in accounting policy, and
 Other capital adjustments



The illustrative statements of financial
position and statement of changes in
equity in IAS 1 and IAS 8 still maintain
the title “retained earnings”

2 KINDS OF RETAINED
EARNINGS


Unappropriated



Appropriated

UNAPPROPRIATED
RETAINED EARNINGS
 Represent

that portion which is
free and can be declared as
dividends to shareholders

APPROPRIATED RETAINED
EARNINGS


Represent that portion which
has been restricted and
therefore is not available for any
dividend declaration

When

the retained earnings
account has a debit balance,
it is called a “deficit”

DIVIDENDS

Dividends

are distribution of
earnings or capital to the
shareholders in proportion to
their shareholdings







When dividends are formally declared
by the board of directors, three dates
are essential for accounting purposes,
namely:
Date of Declaration
Date of Record
Date of Payment

Illustration:
“The Board of Directors at their meeting
on December 31, 2014 declared a
dividend of P5 per share, payable
March 31, 2015, to shareholders of
record on January 31, 2015.”

Illustration:




Date of Declaration: December 31,
2014
Date of Record:
January 31, 2015
Date of Payment: March 31, 2015

RECOGNITION OF DIVIDEND


When the dividend is declared by
management or the board of directors
if the local jurisdiction does not require
further approval
Under Philippine jurisdiction, the
declaration by the board of directors
does not require further approval

RECOGNITION OF DIVIDEND


When the declaration of the
dividend by the management or the
board of directors is approved by the
relevant
authority,
ex.
the
shareholders, if the local jurisdiction
requires such approval

RECOGNITION OF DIVIDEND
Simply

stated, the liability
for the dividend must be
recognized on the date of
declaration.

DIVIDEND OUT OF
EARNINGS






Dividends out of earnings are usually in
the form of the following:
Cash Dividends
Property Dividends
Liability Dividends in the form of bond
and scrip
Stock Dividends or bonus issue

CASH DIVIDENDS


Cash dividends are the
common type of dividend.

most



Term dividend alone, implies the
distribution of cash.

Dividends may be expressed as
follows:
A

certain amount of pesos per
share
 A certain percent of the par or
stated value

Illustration:


The board of directors at their meeting
on November 30, 2014, declared a
dividend of P20 per share, payable
April 30, 2015, to shareholders of
record on December 31, 2014. The
entity had P20,000 shares issued and
outstanding with par value of P100

Journal Entries:
2014
Nov 30- Retained earnings
Dividends Payable
Dec. 30No Entry

400,000
400,000

2015
April 30- Dividends Payable
400,000
Cash
400,000

PROPERTY DIVIDENDS
Property dividends or dividends in kind
are distribution of earnings of the
entity to the shareholders in the form
of noncash assets
 Considered as “distribution of noncash
assets to owners”


Two accounting issues with
respect to property dividends


Measurement of the property
dividend payable



Measurement of noncash asset
to be distributed as property
dividend

MEASUREMENT OF
PROPERTY DIVIDEND
PAYABLE


The dividend payable is initially
recognized at the fair value of the
noncash asset on the date of
declaration and is increased or
decreased as a result of change in fair
value of the asset at year-end and date
of settlement

SETTLEMENT OF PROPERTY
DIVIDEND PAYABLE


IFRIC 17, paragraph 14, provides that
when an entity settles the dividend
payable, the difference between the...
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