Treatment in cash flow

We are given NET PROFIT AFTER DEPRECIATION (this is net profit above the line, i.e. without any appropriations). Hence, the information regarding the dividend payable or the propsed dividend is irrelevant. In your case, you will show the dividend under FINANCING ACTIVITIES only when it is ACTUALLY PAID.

If you were given opening balance of profit & loss a/c and closing balance of profit & loss a/c, then there was a requirement to reduce the proposed dividend as it is an appropriation. This treatment is followed in Indirect Method.

Originally posted by : NISHA AGARWAL
	What should be the treatment of the following in the Cash Flow Statement:- The Company will pay free of tax dividend of 10%, the rate of tax being 25%. (Net Profit after depreciation is 1,04,500)

Payment of Dividend:

10% on Capital of Rs. 3000 (Say)  = Rs. 300
.
As the company has decided to pay tax free dividend to its shareholders, it has to bear the amount of tax payable by its shareholders on receipt of such dividend. Hence, the total amount to be paid for such dividend is, Gross up Amount = (Rs.300/75)*100 = Rs. 400
.
Outflow of Cash (Financing Activities):

Payment of Dividend = Rs. 300

Tax Paid = Rs. 100

Similar question came in PE-II May 2008. Refer to Q. 6(b) on Page 21 for ICAI suggested answer

https://220.227.161.86/12914sugg_pe2_gp2_1.pdf

Will there be any treatment of the dividend and the tax paid thereof in calculation of Operating Profit?