Presentation on

Accounting for
Prepared By-
Dabasish Das
Reg No: 19312004
Monir Ahmmed
Reg No: 19312006
Nayon
Reg No: 1931200
Goals

 What is Dividend?
 How Dividend works
 Types of Dividend
 Dividend entries
 Right to Dividend
 Rules for Payment of Dividend
 Discus Advantages & Disadvantages of Paying Dividends
 Dividend Meaning
 Dividend is a portion of the company's earnings to be distributed
to its shareholders, based on board of directors decision.
 Dividends are quoted as Dividend Per Share (DPS) or dividend
yield.
 However several companies do not offer dividends as all profits
are reinvested to ensure faster, better-than average growth.
 The board of directors decides the percentage of the profit to be
distributed as dividends.
 Dividends are issued quarterly or annually.
 How a Dividend Works
 A dividend’s value is determined on a per
share basis and is to be paid equally to all
shareholders of the same class (common,
preferred, etc.).

Steps of how it works:

 The company generates profits and retained earnings
 The management team decides some excess profits should be paid
out to shareholders (instead of being reinvested)
The board approves the planned dividend.
The company announces the divided (the value per share, the
date it will be paid, the record date, etc.)
The dividend is paid to shareholders
Dividend Example
Dividend Example Result

 General Electric (GE)’s 2017 financial statements. As you

can see in the screenshot, GE declared a dividend per
common share or $0.84 in 2017, $0.93 in 2016, and $0.92
in 2015.
This figure can be compared to Earnings per Share (EPS)
from continuing operations and Net Earnings for the same
time periods.
Types of Dividends
There are various types of dividends a company can pay to its
shareholders. Below is a list and a brief description of the most
common types shareholders receive.
Types include:
 Cash dividends:
This is the payment of actual cash from the company directly to
the shareholders .The payment is usually made electronically (wire
transfer), but may also be paid by check or cash.
For example, imagine that you own 2,000 shares of common stock in
ABC Corporation. ABC has both a surplus of cash and positive retained
earnings, so the board of directors decides to pay a cash dividend of
$10 per share. Your dividend is $20,000 (2,000 shares x $10).
Types of Dividends Cont…
 Property dividends
In this case, the corporation issues a dividend for one of the assets
of the corporation. It could be any asset: inventory, equipment,
vehicle.
Property Dividend Example:
ABC International's board of directors elects to declare a special
issuance of 500 identical, signed prints by Pablo Picasso, which the
company has stored in a vault for a number of years. The company
originally acquired the prints for $500,000, and they have a fair
market value as of the date of dividend declaration of $4,000,000.
Types of Dividends Cont…
Types of Dividends Cont…
 Stock Dividends:
A stock dividend is the issuance by a company of its common
stock to its common shareholders without any consideration.
Stock Dividend Example
ABC International declares a stock dividend to its shareholders of
10,000 shares. The fair value of the stock is $5.00, and its par value
is $1. ABC records the following entry:
Types of Dividends Cont…

 Liquidating dividend:
When the board of directors wishes to return the capital originally
contributed by shareholders as a dividend it is called a liquidating
dividend.
Liquidating Dividend Example
ABC International's board of directors declares a liquidating
dividend of $1,600,000. It records the dividend declaration with this
entry:
Types of Dividends Cont…

On the dividend payment date, ABC records the following entry to

record the payment transaction:
Types of Dividends Cont…
 Scrip dividend.
A company may not have sufficient funds to issue dividends in the
near future, so instead it issues a scrip dividend, which is essentially
a promissory note (which may or may not include interest) to pay
shareholders at a later date. This dividend creates a note payable.
ABC International declares a $250,000 scrip dividend to its
shareholders that has a 10 percent interest rate. At the dividend
declaration date, it records the following entry:
Types of Dividends Cont…

The date of payment is one year later, so that ABC has accrued
$25,000 in interest expense on the notes payable. On the payment
date (assuming no prior accrual of the interest expense), ABC
records the payment transaction with this entry:
Right to Dividend

 Right of company to distribute profits to shareholders.

 Shareholders cannot insist the company to pay.
 Once declared, it has to be paid .
 Dividends paid out of capital are known as liquidation business.
 Dividends are declared by the board of directors each time they are
paid.
 There are three important Dividend Related dates.
Declaration date, Date of record and Payment date.
Rules for Payment of Dividend

 Dividends declared at the General

Meeting
 Shareholders at meeting may reduce but
cannot increase the rate of dividend.
 Boards recommendation for distribution.
 Sources of payment of dividend
 Current profits
 Accumulated profits of previous years
 Once declared cannot be revoked
Accounts
Book of Accounts to be kept by the company with respect to the
following
 All receipt and disbursements of money and the matters in respect
of which these have taken place
 All sales and purchases of goods by the company
 The asset and liability of the company
 In case of companies engaged in production, processing,
manufacturing or mining activities, such particular related to
utilization of material, labour or other costs as may be prescribed
by the central government
Advantages of Paying Dividends
Paying dividends to investors has several advantages, both
for the
investors and the company:
 Investor Preference for Dividends
The investors are more interested in a company that pays
stable dividends. This assures them of a reliable source of
earnings, even if the market price of the share dips.
 Bird-in-hand Fallacy
This theory states that the shareholders prefer the
certainty of dividends in comparison to the possibility of
higher capital gains in future.
 Stability
Investors prefer companies that have a track record of
paying dividends as it reflects positively on its stability
Advantages of Paying Dividends
 Temporary Excess Cash
A mature company may not have attractive avenues to
reinvest the cash or may have fewer expenses related to
R&D and expansion. In such a scenario, investors prefer
that a company distributes the excess cash so that they
can reinvest the money for higher returns somewhere
else.
 Information Signalling
When a company announces the dividend payments, it
gives a strong signal about the future prospects of the
company. Companies can also take advantage of the
additional publicity they get during this time.
Disadvantages of Paying Dividends
Paying dividends also has several disadvantages:
 Clientele Effect
If a dividend-paying company is unable to pay dividends for a
certain period of time, it may result in loss of old clientele who
preferred regular dividends. These investors may sell-off the stock
in short term.
 Decreased Retained Earnings
When a company pays dividends, it decreases its retained
earnings. Debt obligations and unexpected expenses can rise if the
company does not have enough cash.
Disadvantages of Paying Dividends

 Limits Company’s Growth Paying dividends results in

Paying dividends result in the reduction of usable cash which may
limit the company’s growth. The company will have less money to
invest in the business growth.
 Logistics
The payment of dividends requires a lot of record-keeping at the
company’s end. The company has to ensure that the right owner
of the share receives the dividend.
Conclusion

Since dividends are important for keeping the investors happy, a

company should decide upon the time and the form of dividends
diligently. It should also keep in the mind the advantages and the
disadvantages of the dividends before framing a dividend policy.