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Unformatted text preview: ACIS211 Week 6 ACIS211 Week 6 Lecture 1 Distributions Objectives Objectives To prepare the accounting entries for the declaration and payment of dividends Describe and account for bonus share issues Apply FRS20 (now GAAP) to a dividend election plan Distributions Distributions
Distributions are defined in s2 of the Companies Act 1993 as: The transfer of money or property to a shareholder (other than the company) The incurring of a debt to or for the benefit of a shareholder Dividend distributions Dividend distributions Cash distributions Reduction of capital (e.g. reduction of uncalled capital) Repurchase of shares (by the company) Redemption of shares (unilateral by the company) Provision of financial assistance to purchase shares Accounting Treatment for Accounting Treatment for Dividend Distributions
Interim Dividends are paid during the period in anticipation of profits Final Dividends are paid after the end of the period and are authorised as final Dividends must be paid out equally to all shareholders owning the same class of share Depending on the constitution the company may decide to only pay out on the paid components of the shares Accounting Treatment for Accounting Treatment for Dividend Distributions (Cont)
In terim Div idends Final Dividends Dr Cr Dr Cr Dr Cr Cr Interim Dividends (-ve OE) Bank (A) ( Interim Dividends Paid) Final Dividends (-ve OE) Bank (A) ( Final Dividends Paid) Retained Earn ings (OE) Interim Dividends (OE) Final Dividends (OE) ( Closing Entry – Dividends) Closing Entry Accounting Treatment for Accounting Treatment for Dividend Distributions (Cont)
Where a final dividend is announced before the balance date, the dividend becomes a liability, therefore Dr Final Dividends (OE) Cr Dividends Payable (L) Generally the dividend is announced post balance date, disclosed in the notes to the financial statements and paid in the new period Share Splits Share Splits ‘Split’ the number of current shares Retain the total amount of equity Reduce the average share ‘value’ Often done to increase marketability of shares Sometimes done to facilitate change in ownership percentages Bonus Issues Bonus Issues
Bonus issues are share issues made as a noncash distribution (therefore no solvency test) Normally used to indicate future earning potential Accounting for Bonus Accounting for Bonus Issues
When bonus issue made from general equity no entry required Generally bonus issue made from reserves therefore Dr Reserves Cr Contributed Capital Dividend Election Plans Dividend Election Plans (DEP)
This is a choice made by shareholders between receiving: Cash dividends – to gain current profits now Shares – to turn current profits into profit generating potential or A combination of both The share component is valued at the strike price (a proportion of market value between set dates) Accounting for Dividend Accounting for Dividend Election Plans (DEP)
Initial entry D EP treat ment (once amount known) Share Co mponent (Share issue) Cash Co mponent Dr Cr Dr Cr Dr Cr Dr Cr Div idends (-ve OE) Div idends Payable (L) Div idends Payable (L) Share Election Reserve ( OE) Share Election Reserve ( OE) Contributed Capital ( OE) Div idends Payable (L) Bank (A ) Accounting for Dividend Accounting for Dividend Election Plans (Cont)
Dividends paid in shares and cash must be disclosed separately in the financial statements ...
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- Spring '09