Dividends Flashcards
(8 cards)
Which of the following correctly describes the treatment of a declared final dividend?
A. It appears in the Profit and Loss Account only
B. It appears in the SoCiE and as a current liability if unpaid
C. It only appears in the Balance Sheet under assets
D. It is recorded as income for the company
B. It appears in the SoCiE and as a current liability if unpaid
Explanation: Once a final dividend is declared, it becomes a debt. It is recorded in the SoCiE and, if unpaid, also as a liability on the balance sheet.
What are dividends paid out of?
A. Capital reserves
B. Distributable profits
C. Retained earnings
D. Share premium
B. Distributable profits
Explanation: A company can only pay dividends from profits available for distribution, i.e. distributable profits (s830 CA 2006), which come from retained earnings.
A company’s accounting year ends on 31 March 2024. A final dividend is declared on 1 July 2024 and paid in August. Where will this dividend appear?
A. In the SoCiE for the year ending 31 March 2025
B. In the P&L for the year ending 31 March 2024
C. In the balance sheet as a liability for the year ending 31 March 2024
D. In the SoCiE for the year ending 31 March 2024
A. In the SoCiE for the year ending 31 March 2025
Explanation: Since the dividend was declared after the end of the 2024 accounting period, it appears in the SoCiE for the 2025 accounting period.
Which of the following statements about interim dividends is TRUE?
A. They must be declared by shareholder resolution
B. They appear as expenses in the Profit and Loss Account
C. They are enforceable debts even before payment
D. They are included in the P&L once declared
A. They must be declared by shareholder resolution
Explanation: Interim dividends are usually declared by directors (not shareholders) and become a liability only once paid. They are not P&L expenses.
ABC Ltd has £100,000 in retained earnings and proposes a final dividend of £20,000. The dividend is declared on 15 March 2025, after the accounting period ending 31 December 2024. What is the correct accounting treatment in the 2024 accounts?
A. Show the dividend in the P&L and reduce retained earnings
B. Show the dividend in the SoCiE and balance sheet
C. Do not show the dividend in any 2024 statements
D. Include the profit for the year but exclude the dividend until declared
D. Include the profit for the year but exclude the dividend until declared
Explanation: The dividend declared after year-end will not appear in the 2024 accounts. Profit is included, but the dividend is shown in the 2025 SoCiE.
Company Z declares and pays an interim dividend of £5,000 in November 2024. What is the correct treatment?
A. Recorded as a liability and expense
B. Shown in the P&L and SoCiE
C. Recorded only in the P&L
D. Deducted from assets and included in the SoCiE
D. Deducted from assets and included in the SoCiE
Explanation: Interim dividends reduce the cash/assets and are included in the SoCiE if paid. They do not appear in the P&L.
Which of the following best describes the function of the Statement of Changes in Equity (SoCiE)?
A. Lists current and long-term liabilities
B. Shows revenue, expenses and net profit
C. Tracks retained earnings and dividends
D. Records changes in asset valuation
C. Tracks retained earnings and dividends
Explanation: The SoCiE records opening retained earnings, profit for the year, and dividends paid, resulting in the closing retained earnings.
Which of the following is NOT a correct characteristic of a final dividend?
A. It is proposed by the directors
B. It is declared by shareholders at a general meeting
C. It can be revoked after declaration
D. It creates a debt once declared
C. It can be revoked after declaration
Explanation: A final dividend becomes a legal debt once declared and cannot be revoked. Interim dividends, by contrast, can be rescinded before payment.
