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Retained earnings
Dividends
DEFINITION
Retained Earnings represent the cumulative balance of the
following:
a. Net income or loss for the period
b. Dividend distributions
c. Prior period errors
d. Changes in accounting policy
e. Reclassifications of some components of other
comprehensive income
f. Other capital adjustments
The IFRS term for retained earnings is
“accumulated profits.”
a. Cash dividends
b. Property dividends
c. Liability dividends in the form of bond and
scrip
d. Share dividends or bonus issue
CASH DIVIDENDS
When the share dividends are issued, the journal entry is:
Share dividends payable 200,000
Share capital 200,000
Fractional share dividends
c. When only 600 full shares are issued through the surrender of
the required fractional warrants and the remaining warrants
expired:
Fractional warrants outstanding 100,000
Share capital (600 shares x 100) 60,000
Treasury shares as share dividend
Treasury shares may be declared as share dividend.
The declaration of treasury shares as dividend is termed as
property dividend under the Philippine Corporation
Code. However, the authors believe that such declaration
shall be accounted for as share dividend.
Illustration
An entity distributed as share dividend 1,000 treasury shares
with cost of P100,000 and market value of P120,000.
*Note that the cost of the treasury shares is charged to retained earnings.
a. To record the declaration:
Retained earnings 100,000
Share dividend payable
100,000
*Note that any amount declared in excess of the retained earnings balance is
treated as liquidating dividends and charged to the capital liquidated account which
is a deduction from the total shareholders’ equity.
Dividends as expense
Retained earnings
Appropriation and quasi-
reorganization
Appropriation of retained earnings
In order to limit or restrict the payment of dividends,
the entity may transfer a portion of the retained
earnings unappropriated to retained earnings
appropriated.
Retained earnings xx
Retained earnings appropriated xx
a.Recapitalization
b.Revaluation of property, plant and equipment
Circumstances that may justify quasi-
reorganization
a.When a large deficit exists,
b.When approved by the shareholders and creditors.
c.When the cost basis of the accounting for property,
plant and equipment becomes unrealistic.
d.When a “fresh start” appears to be desirable or
advantageous to all parties concerned.