Question
On the date a company's board of directors declares a cash dividend, the company records:
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 10 and IAS 32 — events after the reporting period; equity distributions
A dividend becomes a liability only when it is declared, which is what separates the declaration entry from the payment entry. A dividend declared after the reporting date is not recognised as a liability at that date.
Common mistakes
- Recognising a proposed dividend as a liability before it has been declared.
- Treating a dividend as an expense in profit or loss rather than a distribution of retained earnings.
- Recording a share dividend as though it reduced net assets, when it only moves amounts within equity.
Further readingIAS 10: events after the reporting period