Practice Activity 9.8 Treatment of dividends in the financial statements of a Limited Liability Company
The year-end of Excellent Value Banner Products Limited is 31 March annually. The following transactions occurred during the year ended 31 March 2018 and 31 March 2019, respectively:
i. On 31 March 2018, the management proposed a final dividend of ₦4 million for the year ended 31 March 2018.
ii.At the Annual General Meeting (AGM) on 3 May 2018, a final dividend of ₦4 million for the year ended 31 March 2018 was approved to be paid to ordinary shareholders. On 3 June 2018, the Company paid a final dividend amounting to ₦4 million for the year ended 31 March 2018.
Required: Are Journal entries needed to show how Excellent Value Banner Products Limited should treat these transactions in their accounts? Prescribe the appropriate manner to treat the transactions.
See the suggested answers to practice activity 9.8 here.
Suggested answers to practice activity 9.8
Transaction i: On 31 March 2018, the Board of Directors proposed a final dividend of ₦4 million for the year ended 31 March 2018.
No Journal entries are needed to show how Excellent Value Banner Products Limited should treat the transactions in their accounts. The proposed dividend is reported in the notes to the financial statements because the Board of Directors has not declared it in the company's Annual General Meeting.
Transaction ii: On 3 May 2018, at the Annual General Meeting (AGM), a final dividend of ₦4 million was approved for the year ended 31 March 2018 to be paid to ordinary shareholders. On 3 June 2018, the Company paid a final dividend amounting to ₦4 million for the year ended 31 March 2018.
The final dividend will be accounted for if it is declared before the end of the accounting year. If it has not been declared before the accounting year end, it is disclosed in the notes to the financial statements.
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