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

Kestrel Co has a reporting date of 31 December 20X5. On 20 January 20X6 the directors declared a final ordinary dividend of $200,000 in respect of the year ended 31 December 20X5. The dividend was paid on 15 March 20X6. How should Kestrel Co treat the dividend in its financial statements for the year ended 31 December 20X5?

The dividend should be disclosed in the notes only. Because it was declared after the reporting date, no obligation existed at 31 December 20X5, so no liability is recognised. Dividends are a distribution of equity, not an expense, so profit or loss is unaffected.

  1. ARecognise a liability of $200,000 and deduct it from retained earnings
  2. BDisclose it in the notes only, with no liability recognisedCorrect
  3. CRecognise it as an expense in the statement of profit or loss
  4. DMake no disclosure because it was paid after the reporting date

Explanation

Under IAS 10, dividends declared after the reporting period do not meet the definition of a liability at the reporting date, because there was no present obligation then. They are therefore not recognised but are disclosed in the notes. Dividends are also never an expense in profit or loss.

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