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CA Intermediate · Advanced Accounting · Financial Statements of Companies

Gangotri Ltd. has 50,000 equity shares of Rs 10 each. The Board proposes a final dividend of Rs 2 per share after the balance sheet date but before the financial statements are approved. As per Schedule III read with AS 4 and the Companies Act, how should it be treated in the financial statements for the year ended 31 March 2026?

The Rs 1,00,000 proposed dividend is only disclosed in the notes and not recognised as a liability. Under AS 4 a dividend declared after the balance sheet date is not an obligation at that date, and Schedule III requires its disclosure.

  1. AProvide for Rs 1,00,000 as a current liability in the Balance Sheet
  2. BDeduct Rs 1,00,000 from the Statement of Profit and Loss for the year
  3. CDisclose Rs 1,00,000 in the notes as proposed dividend, with no liability recognisedCorrect
  4. DIgnore it completely until the dividend is paid

Explanation

Under AS 4 (revised), dividend proposed after the balance sheet date is not a liability at that date, so no provision is made. Schedule III requires the proposed dividend (50,000 x Rs 2 = Rs 1,00,000) to be disclosed in the notes. Providing for it as a liability is the old treatment and is wrong.

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