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ACCA Strategic Professional · Strategic Business Reporting (International) · Presentation and disclosure in financial statements

Karta Group has a year end of 30 June 20X6 and its financial statements were authorised on 10 September 20X6. On 15 August 20X6 the board declared a final dividend of $0.20 per share on 50 million shares. Which treatment is correct under IAS 10 and IAS 1?

No liability is recognised at 30 June 20X6, and the $10 million dividend is disclosed in the notes. Dividends declared after the reporting period do not represent an obligation at the reporting date, so under IAS 10 they are a non-adjusting item requiring disclosure.

  1. ARecognise a liability of $10 million at 30 June 20X6 because the dividend relates to profits earned in the year
  2. BDo not recognise a liability at 30 June 20X6; disclose the dividend of $10 million in the notesCorrect
  3. CRecognise a provision of $10 million because the board has a constructive obligation
  4. DMake no disclosure because the dividend is a distribution to owners, not an expense

Explanation

Dividends declared after the reporting period are not a liability at the reporting date because no obligation existed then. IAS 10 requires disclosure in the notes: 50m x $0.20 = $10m. Recognising a liability would be wrong as it would treat a non-adjusting event as adjusting.

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