📚 Dividends and Buy-Backs (Grade 12
CAPS Summary)
1. Dividends Basics:
● A dividend is part of a company’s profit given to shareholders.
● Interim dividend = paid during the financial year.
● Final dividend = declared at the end of the financial year.
2. Calculating Dividends:
Formulas:
Interim Dividend=Interim Dividend per Share×Shares issued at that time\text{Interim Dividend} =
\text{Interim Dividend per Share} \times \text{Shares issued at that time}Interim
Dividend=Interim Dividend per Share×Shares issued at that time Final Dividend=Final Dividend
per Share×Shares issued at year-end\text{Final Dividend} = \text{Final Dividend per Share}
\times \text{Shares issued at year-end}Final Dividend=Final Dividend per Share×Shares issued
at year-end
✅ Always use issued shares, not authorized shares.
✅ If new shares are issued during the year, you must be careful:
● Interim dividend: Only old shares (before issue date).
● Final dividend: Total shares (old + new shares issued).
3. When a Buy-Back Happens:
● A buy-back is when the company repurchases its own shares.
● This reduces the number of issued shares.
● How it affects dividends depends on whether the buy-back shares qualify for dividends.
4. Two Cases for Buy-Backs:
Situation What to do for dividend calculation
Buy-back shares qualify for ✅ Use the full number of shares before buy-back.
dividends
Buy-back shares do not qualify ✅ Subtract buy-back shares — use reduced number
of shares.
✅ The exam paper will tell you clearly if the shares bought back still qualify.
5. Full Example Including Buy-Back:
Given:
● 500 000 shares at the start.
● 50 000 shares bought back on 28 February.
● Interim dividend declared on 30 September: 20 cents per share.
● Final dividend declared on 28 February: 30 cents per share.
● Financial year-end: 28 February.
● Buy-back shares qualify for final dividend.
Step-by-Step:
Interim Dividend (30 September):
● No buy-back yet.
● Use 500 000 shares.
500000×0.20=R100 000500 000 \times 0.20 = \text{R100 000}500000×0.20=R100 000
Final Dividend (28 February):
● Although buy-back happens on same day, the shares qualify.
● Still use 500 000 shares.
500000×0.30=R150 000500 000 \times 0.30 = \text{R150 000}500000×0.30=R150 000
Total Dividends for the Year:
100000+150000=R250 000100 000 + 150 000 = \text{R250 000}100000+150000=R250 000
6. Where it goes in financial statements:
● Appropriation Account:
○ Less: Interim dividend (R100 000)
○ Less: Final dividend (R150 000)
● Balance Sheet:
○ "Shareholders for dividends" under Current Liabilities: R150 000 (the final
dividend not yet paid).
○ Ordinary Share Capital must decrease after buy-back by:
■ Number of shares bought back × Par value
○ Retained Income decreases too if the company paid more than par value.
🔥 Quick Reminders:
● Always check dates of new shares and buy-backs.
● Always check if buy-back shares qualify or not.
● Only use issued shares for dividend calculations — not authorized shares.
● Appropriation Account shows dividends deducted from Net Profit after Tax.