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ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs

Kestrel Ltd has 4,000,000 equity shares of $0.50 each in issue. The directors declare a final dividend of $0.06 per share on 20 March, after the reporting date of 31 December, payable on 30 April. How should this dividend be treated in the financial statements for the year ended 31 December?

The dividend is only disclosed in the notes. It was declared after the reporting date, so no obligation existed at 31 December, making it a non-adjusting event. No liability is recognised, and dividends on equity shares are never a finance cost or an expense in profit or loss.

  1. ARecognise a liability of $240,000 and deduct it from retained earnings
  2. BDisclose it in the notes only; no liability is recognisedCorrect
  3. CRecognise it as a finance cost in profit or loss
  4. DRecognise it as an expense in other comprehensive income

Explanation

A dividend declared after the reporting date does not create an obligation at the reporting date, so it is a non-adjusting event. It is disclosed in the notes (4,000,000 x $0.06 = $240,000) but not accrued. Recognising a liability would be wrong because no obligation existed at 31 December.

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