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ACCA Applied Knowledge · Financial Accounting · Events after the reporting period

Kappa Co has a year end of 30 June 20X6. On 10 August 20X6 the board declared a final dividend of $50,000 for the year ended 30 June 20X6. The financial statements were authorised on 20 September 20X6. What is the correct treatment in the financial statements for the year ended 30 June 20X6?

No liability is recognised, because dividends declared after the reporting period were not an obligation at the year end. The $50,000 dividend is disclosed as a non-adjusting event in the notes, not charged to profit or loss.

  1. ARecognise a liability of $50,000 and reduce retained earnings
  2. BRecognise a liability only if the dividend was paid before 20 September 20X6
  3. CDo not recognise a liability; disclose the dividend as a non-adjusting eventCorrect
  4. DRecognise the dividend as an expense in profit or loss

Explanation

Dividends declared after the reporting period do not create an obligation at the reporting date. No liability is recognised and the dividend is disclosed in the notes. Recognising it would overstate liabilities.

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