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ACCA Applied Skills · Financial Reporting · Provisions and events after the reporting period

Harlow Co has a year end of 30 June 20X6. On 15 July 20X6 its board proposed a final dividend of $0.20 per share on 5 million shares, and shareholders approved it at the AGM on 20 September 20X6. The financial statements were authorised on 10 September 20X6. What is the correct accounting treatment in the year ended 30 June 20X6 financial statements?

No liability is recognised; the $1,000,000 proposed dividend (5 million shares at $0.20) is disclosed in the notes. Dividends declared after the reporting period do not create an obligation at the reporting date, so IAS 10 prohibits recognising them as a liability.

  1. ARecognise a liability of $1,000,000
  2. BRecognise a provision of $1,000,000 and disclose it
  3. CDo not recognise a liability; disclose the proposed dividend of $1,000,000 in the notesCorrect
  4. DMake no recognition or disclosure

Explanation

Dividends declared after the reporting period are not a present obligation at the reporting date, so no liability is recognised (IAS 10). Proposed amount is 5,000,000 x $0.20 = $1,000,000 and it is disclosed in the notes. Recognising it would wrongly reduce equity and increase liabilities.

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