URE > CONTRIB.
CAPITAL = MANDATORY TO DECLARE DIVIDENDS
note: that's why corp js appro. the RE
Who are entitled to dividends?
Subscribed SC
OSC
Delinquent SH
Dividend is out of accu. earnings, xpn: Liquidating Dividend -> Return of SH's
investment
Dividends out of earnings
Dividends out of capital
Stock Corps. PROHIBITED, retaining surplus profit in excess of 100% of PIC,
xpn:
Justified Corporate Expansion
Prohibited under any loan agreement
If a corp has a DEFICIT = ILLEGAL to declare dividends
If a corp declares dividends in excess of RE = ILLEGAL, VIOLATES Trust Fund
Doctrine
Can declare dividends from Share Premium according to SEC
BOD vote on the declaration of cash dividends
Date of Declaration
Declared cash dividend is a liability
J/E
Dr RE
Cr Cash Dividends Pay. / Stock Dividends Pay. / Property Dividends Pay.
Date of Record
List of Current SH
ONLY SH registered at the Date of Record are ENTITLED to dividends
NO J/E
Date of Paym't/Distribution
Do not pay cash dividends on treasury shares
J/E
Dr Cash Div. Pay.
Cr Cash
Dr Stock Dividends Distributable
Cr Share Capital
Subscribers are ENTITLED to dividends
His cash dividend can be deducted to his subscription receivable
Preference Shares:
Silent problem = Non Cummulative, Non participating
Dividends in Arears:
The problem HAS TO STATE dividends in arrears for it to take effect, EVEN it was
stated that it was cumulative
The fact that a share is “cumulative” simply means:
Any unpaid past dividends must be settled before ordinary dividends can be paid
Participating is AS TO Preference Shares
If there are two classes of PSs with different dividend rates - As to Ordinary
Choose the LOWER rate
If ONLY ONE PS is participating -> its rate is the basis for Ordinary Share
Dividend
Ordinary HAS NO arrears, NOT Cummulative
PROPERTY DIVIDENDS
Measurement is at Fair Value at balance sheet date
If not distributed on balance sheet date, there will be changes in Fair Value
As to Journal entry of changes in FMV adjust RE and Property Dividends accounts
respectively
As to Dates - Adjust amounts on balance sheet and settlement date (IF not
distributed at BS date)
RECOGNIZE any gain or loss
AT DATE OF SETTLEMENT
Dr Property Dividends Payable
Dr Loss on Distribution of property (if FV < CV) - Loss
Cr Non Cash Asset
Cr Revaluation Surplus (if FV > CV) - Gain
Carrying Amt. (Cost - Accum. Depre) between Dividend Payable and Asset Distributed
recognized in P&L
Impairment Loss - FV less cost to distribute < Carrying Amt. of Asset at the end of
reporting period
Shares form another Corporation as Property Dividends
Dr Property Dividends Payable
Dr Loss on Distribution of Property (if FV < BV)
Cr Investment in Shares of Another Corp.
Cr Gain on Distribution of Property (if FV > BV) 3
SCRIP DIVIDENDS
Notes Payable as a form of dividend
Dr Scrip Dividends Payable
Dr Interest Expense
Cr Cash
BOND DIVIDENDS
Dr Bond Dividends Payable
Cr Bonds Payable
To recognize the interest the shareholder receives per annum
Dr Interest Expense
Cr Cash
To record the redemption of the bonds on maturity date
Dr Bonds Payable
Cr Cash
SHARE DIVIDENDS (BONUS ISSUE/STOCK DIVIDENDS)
Key words: Capitalized = Share Dividends are DECLARED
Small Share Dividend - 20%< of OSC
Measurment - FMV
Large Share Dividend - >=20% of OSC
Measurement - Par or SV
Share that are already issued could also be DECLARED as dividends (Including
Respective Premium)
Ending Balance of RE is Unappropriated Balance
Book Value per share
How much per share IF it were to liquidate today
treasury shares are deemed as retired
if liquidation > par = premium (liquidation value - par x # of shares)
Call price = disregard