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

Zeta 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. Which treatment is correct in the financial statements for the year ended 31 December 20X5?

The dividend should be disclosed in the notes only. It was declared after the reporting date, so no obligation existed at 31 December 20X5 and no liability is recognised. Under IAS 10 it is a non-adjusting event, and it is accounted for in the period in which it is declared.

  1. ARecognise a liability of $200,000 and deduct it from retained earnings
  2. BDisclose the dividend in the notes only, with no liability recognisedCorrect
  3. CRecognise a provision of $200,000 through profit or loss
  4. DIgnore the dividend completely because it relates to the shareholders

Explanation

A dividend declared after the reporting period does not create an obligation at the reporting date, so no liability is recognised. IAS 10 requires it to be disclosed in the notes as a non-adjusting item. Recognising a liability is wrong because no present obligation existed at 31 December 20X5.

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