PROPOSED DIVIDEND

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manan kansal (Querist)
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27 February 2017 As per amendment in AS 4 , Proposed Dividend is required to be shown in notes to accounts , so will entry be passed in journal for it ?

manan kansal

manan kansal (Querist)
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27 February 2017 please reply someone !!

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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10 August 2024 Under the revised AS 4 (Accounting Standard 4) and its amendment in the Indian Accounting Standards (Ind AS), the treatment of proposed dividends has specific requirements. Here’s a breakdown of how proposed dividends should be accounted for:

### **1. Accounting for Proposed Dividends**

**Journal Entry:**
- **No Journal Entry for Proposed Dividend:** Proposed dividends, which are amounts declared by the board of directors for distribution to shareholders but not yet approved by the shareholders in the general meeting, are not recorded as a liability in the books of accounts. Instead, they are disclosed in the notes to the accounts.

- **Disclosure Requirement:** According to the revised AS 4, proposed dividends should be disclosed in the notes to the accounts. This helps users of financial statements understand the amount of proposed dividends and their impact on the company's financial position.

**When the Dividend is Declared and Approved:**
- **At the time of declaration (when approved by shareholders):** Once the proposed dividend is declared and approved by the shareholders in the annual general meeting, it becomes a liability. At this point, you would record a journal entry.

### **2. Journal Entry for Approved Dividend**

Once the dividend is declared and approved by the shareholders, the following journal entries should be made:

1. **Declaration of Dividend:**
```plaintext
Debit: Profit and Loss Appropriation Account
Credit: Proposed Dividend Account
```

2. **Payment of Dividend:**
When the dividend is actually paid out to shareholders, the following entry is made:
```plaintext
Debit: Proposed Dividend Account
Credit: Bank Account (or Cash Account if paid in cash)
```

### **3. Treatment in Financial Statements**

- **Before Approval:** Proposed dividends are disclosed in the notes to the accounts. They are not recorded as a liability or deducted from reserves until they are formally declared and approved.

- **After Approval:** Once the dividend is declared and approved, it is recorded as a liability in the balance sheet and the journal entries reflect this.

### **4. Summary**

- **Before Declaration:** No journal entry is made. The amount is disclosed in the notes to accounts.
- **Upon Declaration and Approval:** Journal entries are made to record the liability and subsequent payment.

### **5. References:**

- **AS 4 (Revised):** “Contingencies and Events Occurring After the Balance Sheet Date”
- **Ind AS 10:** “Events after the Reporting Period” (For companies following Ind AS)

To ensure compliance with the accounting standards and proper presentation in financial statements, it’s advisable to consult with a professional accountant or auditor.

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