Dividends declared after the Balance Sheet date

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Dividends declared after the Balance Sheet date - Ali Akbar - 10-03-2004

IAS 10 provides that dividend declared after the date of balance sheet shall not be adjusted.
Usually dividends are declared in board meetings, after the date of balance sheet, keeping in view the net profit of immediately preceding financial year, then why the dividend is not adjustable in accounts of the preceding year to which it relates?
Answers are required from only professionals or seniors.

- aamersikandar - 10-07-2004

Hi

IAS 10 treatment may have been misunderstood. Interim dividends are shown on face of financial statements including statement of changes in equity, however final dividend is only shown if declared before date of balance sheet. The reason of not showing final dividend is that unlike interest, dividends do not accrue over a period of time and thus their is no certainity on balance sheet date for their announcement. A company may not declare dividends at all - as is case with many Pak listed companies. However the obligating event occurs when the board announces it and thus a liability occurs which was not present at balance sheet date. Thus not an adjusting event.
The nature of dividend here is not even residual but a distribution of residual (profit) therefore it does not accrue and depends on a decision. Similarly recognition of dividend and interest incomes also follow the same principle (Reverse to the above treatments of IAS 10).
Hope this shall answer your question.

Aamer Sikandar

Edited by - aamersikandar on Oct 06 2004 93108 PM

- irfanahmedmeer - 10-07-2004

from what I undertsand you are right IAS-10 does not require dividend declared after balance sheet date to be accrued. Howver, 4th schedule does so should we follow IAS or 4th schedule?

Irfan

- aamersikandar - 10-08-2004

Hi
I do not exactly remeber if 4th Schedule allows this. But if it does then follow fourth schedule as either IAS 1 or the framework (either one of the two) permits using local statutory requirements with disclosures in notes.

Aamer Sikandar

Edited by - aamersikandar on Oct 07 2004 91116 PM

- Mr. Whappaaaa - 10-13-2004

HI ALI

Firstly i inform you that some improving STANDARDS was introduced by IASB at U.k. teacher's confereence in which IAS 10 was also involved ...and it was said that"dividends declared after the balance sheet date should not be recognized as a libility but sohuld be shown as a NOTE in the financial statement coz its a non-adjusting events" ... treatment of proposed dividend as a notes to the accounts is not a problem .. but IAS 10 also allows that proposed dividend should be shown as a separate component of equity on the face of balance sheet...so this situation create some problems therefore the treatment is that... " The final balance of accumulated profit must be shown before the deduction of the proposed dividend, hence the proposed dividend may not be shown as a deduction from accumulated profit"

TREATMENT ARE AS FOLLOWS IN BAL.SHEET $000

Accumulated profit(from which a proposed 100
dividend of 20,000)

MR WHAPPAAAA

- Mr. Whappaaaa - 10-13-2004

BALANCE SHEET

Accumulated profit 100,000
(of which proposed dividens is 20,000)

sorry for inconvenience to make a balance sheet in previous reply

MR WHAPPAAAA

- smraza - 10-14-2004

<BLOCKQUOTE id=quote>quote<hr height=1 noshade id=quote>
IAS 10 provides that dividend declared after the date of balance sheet shall not be adjusted.
Usually dividends are declared in board meetings, after the date of balance sheet, keeping in view the net profit of immediately preceding financial year, then why the dividend is not adjustable in accounts of the preceding year to which it relates?
Answers are required from only professionals or seniors.
<hr height=1 noshade id=quote></BLOCKQUOTE id=quote>

what we have talked before relates to the requirements of standard and local laws,
now coming to your question, that it should be accounted for in the financial statements for the period to which it relates,
Logically speaking you are right, but if we look at the nature of the dividend, it is an appropriation dependent upon a certain event, i.e. profit, and in my opinion appropriations cannot be related to a financial period. Its my personal opinion.

SMR

- aamersikandar - 10-15-2004

Hi
I do not agree whith WHAAP. On the face of balance sheet does not mean that you can not write it. It means that its not included as a line item. Disclosing it as part of another item without saperately treating it as a line item means it has not been recognised and no effect of the transaction has been passed. So the convention of not showing it on the face of balance sheet stands.
Thanks

Aamer Sikandar

- Kaash_ACMA - 10-15-2004

hi everyone.... well it is rite that if dividends r proposed or declared after the balance sheet date ,, they should not be recognised as liability.....u just need to disclose the amount....
the main point of u Ali is that why dividend is not adjustable in accounts .... I will tell u tomorrow gtg somewhere ,,,sorry for this time...... warna main abhie explain karta is ko ..... okies,,, cus ppls... 2moro.....

Never look back If you wanna do something,,, but sometimes do it for ur heart,,,

- Ali Akbar - 10-19-2004

Well, i think that i should elaborate my question. As for as the non recognition of dividend declared after the balance sheet date as a liability is concerened, i understand its logic in the light of IAS 10.
Final cash dividend is always declared after the balance sheet date in the board/directors meeting keeping in view the profits of immdiately preceeding financial year. Let me explain it through practical example.
Directors of OGDCL declared final cash dividend of RS 1.25/share for the year ended 30 June 2004 in their board meeting which was held on 22nd september. If you see at Annual Report 2004 of OGDCL, it reflects that dividend declared after the balance sheet date has been adjusted in the accounts of 2004. Apart for OGDCL report you can see Annual Reports of DG KHAN Co Ltd, it also reflects that dividend declared after the date of balance sheet has been adjusted.
Now the question arises, are they unaware of treatment of IAS 10? or you are not interpreting IAS 10 properly?.
Waiting for reply from professionals or seniors.

- smraza - 10-19-2004

<BLOCKQUOTE id=quote>quote<hr height=1 noshade id=quote>
Well, i think that i should elaborate my question. As for as the non recognition of dividend declared after the balance sheet date as a liability is concerened, i understand its logic in the light of IAS 10.
Final cash dividend is always declared after the balance sheet date in the board/directors meeting keeping in view the profits of immdiately preceeding financial year. Let me explain it through practical example.
Directors of OGDCL declared final cash dividend of RS 1.25/share for the year ended 30 June 2004 in their board meeting which was held on 22nd september. If you see at Annual Report 2004 of OGDCL, it reflects that dividend declared after the balance sheet date has been adjusted in the accounts of 2004. Apart for OGDCL report you can see Annual Reports of DG KHAN Co Ltd, it also reflects that dividend declared after the date of balance sheet has been adjusted.
Now the question arises, are they unaware of treatment of IAS 10? or you are not interpreting IAS 10 properly?.
Waiting for reply from professionals or seniors.
<hr height=1 noshade id=quote></BLOCKQUOTE id=quote>
They are very well aware of treatment under IAS 10 Ali, but 4th Schedule (applicable to 30th June 2004) requires the dislosure of proposed dividend as liability. Now in the case of dividend the requirements of IAS and Ordinance differ.
If you look at the accounting policies of both the companies you have mentioned, under the heading "Statement of Compliance" it is clearly written that
"where the requirements of IASs and Ordinance differ, the requirements of companies ordinance take precedence"

SMR

- CBPian - 10-31-2004

Reading this discussion which has been repeated far too often at many occasions, I think it is high time ICAP publishes an authoritative factsheet on differences between disclosures/treatments per Companies Ordinance and IFRS rather than just relying on the fact that local laws take precedence.