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

Zenith Co has a reporting date of 31 December 20X5. The financial statements were authorised for issue on 20 March 20X6. On 15 February 20X6 the directors declared a final dividend of $200,000 for the year ended 31 December 20X5. Which treatment is correct in the financial statements for the year ended 31 December 20X5?

The dividend declared in February 20X6 is not recognised as a liability at 31 December 20X5 because no obligation existed at that date. It is a non-adjusting event, so the $200,000 is disclosed in the notes only. Dividends are also never charged as an expense.

  1. ARecognise a liability of $200,000 and deduct it from retained earnings at 31 December 20X5
  2. BMake no liability adjustment, but disclose the dividend in the notes as a non-adjusting eventCorrect
  3. CRecognise the dividend as an expense in the statement of profit or loss for 20X5
  4. DMake no adjustment and no disclosure because the dividend relates to the next period

Explanation

Under IAS 10, dividends declared after the reporting period are not a liability at the reporting date because there is no present obligation then. They are not recognised, but the amount is disclosed in the notes. Recognising a liability would be wrong as it treats the declaration as an adjusting event. Dividends are also never an expense in profit or loss; they are a distribution of equity.

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