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Treatment of different kinds of dividend in cfs as 21.

Prachi Srivastava (Finance) (368 Points)

12 December 2014  

Hi, I want to understand he difference in treatment of Proposed dividend, declared dividend, final and interim dividend and Dividend paid while preparing consolidated financial statements.

I have seen in some problems that while dividend paid is reduced from pre-acquisition profits(while doing analysis of profits), proposed dividend is not. However both of these are reduced from Cost of investment while preparing Cost of Control. Is my understanding correct? Can you please tell the reason for this difference in treatment.

On the similar lines I want to understand treatment for other dividends too listed above. I have been struggling with this for a long time. Request your help.

 10 Replies

ABHINANDAN JAIN (CA Student) (886 Points)
Replied 13 December 2014

Hello Prachi

Let me try to make u understand

General Rule:Final Dividend is generally proposed for a particular year after recommendation in Board meeting based on 31st march net results. As per AS 4 it should be adjusted in Current year financial statement even though it's a non adjusting event and to be shown in Sub heading 'Other Current Liability' of main head Current Liability in balance sheet prepared in accordance with Schedule II of company act 2013.

[Why Non Adjusting: Except dummy candidate, we all know the fact that accts for current year is not prepared and approved exactly by 31st march. Its take time. Further on balance sheet we do not know whether dividend is proposed or not. This is becoz Borad meeting is conducted mainly in month of april to may to decide proposal. If BM is conducted before march then well n gud, then its mandatorily need to provide for Proposed dividend. But if not conducted then AS 4 says, even it becomes a non adjusting event, it should mandatorily be adjusted in that yr accounts itself.]

DIVIDEND PROPOSED & adjusted in last year is to be paid in Current year (within 30days of proposal). Then this is regarded as Dividend paid.

Now for the pupose of Sums (academic Purpose): In sums when a dividend paid is given, then institute in all sums assumed that it has been proposed in current year and paid in current year itelf (going against the general rule).

So when a dividend paid is given , we need to identify year (Source) for which it has been paid.(this identification is required in step 3 discussed below)

Step 1;In AOP (Analysis of Profits), it may so happen that u are analysing more than 2 year by comparing opening and closing profits. If dividend has been paid between these yers, it has to be added back (becoz we need to calculate profits before adjustment of dividend (there may be other items like abnormal loss,etc), obvioulsy we will deduct dividend paid by reducing profits, but will do after adjusting profits in accordance with Time).

Now question where to add back..i mean in Capital Profit (called pre) or in Revenue Profit (called post). The anwer to this question depends on sums where we got to know where the profits for div proposed & paid is reduced. As told above that ICAI unless specifiaclly p&L account or specifc info is not given, it is assumed to be proposed and paid both made in current yr. It means it has been reduced in current by reducing cy profits. so it shouls be added back in Current yr profits i.e. post Profits i.e. Revenue Profits. (Since capital profit is past yrs profits).

Step2: Now apply Time adjustments i.e. adjust profts before dividend (there may be other items also) accoring to time or period falls in post period and pre period of acquisition of shares.

Step 3: Now its time to reduce dividend paid again which we nullified earlier. Now answer to this ques depends on YEAR for which it pertains to or has been paid.

Following type of language may be given:Date of purchase of shares 01.04.14

" The Profit and Loss A/c showed cr balance of Rs ...on 01.04.14. Out of which a dividend pf 10% was paid on 01.08.14'

This 'out of which' language does not mean that it has been deducted or more clearly proposed in Previous yr accounts (i.e in 13-14). It's telling the source or year for which dividend pertains to. (Obviously proposed and paid in current yr i.e. 14--15 due to assumption running in background but dividend is pertains to 13-14)

So for answer to step 3 is: Dividend though proposed and paid in current year but it pertains to Yr 13-14(i.e. previous yr), so it should be deducted or reduced in pre profits (i.e. Capital Profits) calculated after time adjustments.

Be careful while deducting, it may so happen that the company had purchsed shares on 30.09.13(in 13-14), in that case dividend paid is again to be deducted according to time i.e. 6months pre, 6m post).


Now 2nd situation where Proposed dividend is given in Standalone Balance sheet or question gives the information for proposing dividend for current yr.

In such a situation, no assumption is reqd. it is very much clear that it has been proposed in current and to be paid in next yr.

Step 1: Case a: P.Div shown in B/sheet: In AOP, since adjusted in B/shhet, Profits have been reduced, now add back in Revenue Profits (since adjusted in current yr accounts, simply apply above rules)

           Case b: P/Div is yet to shown in B/shet: In AOP, not reqd. to add back (since Profits not  yet reduced, so why to inflate)

Step 2 simply apply Time adjustments

Step 3: Need to reduce where it pertains to. Obviously, this proposed dividend is pertains to current yr, so it should be dedcuted in current yr.

Now coming to your original quest:

See for common parlance:

the word recommendation: means it has been proposed

the word declared: means it has been paid

To summarise: there may be two types of Final and Interim. Final dividend proposal and its Payment is discussed above:

For interim dividend, it is recommended by board in between the running year. It is first deducted in revenue profits in AOP and apply time adjustments, then deduct according to date of purchase of shares. Say for ex: interim dividend of Rs 70000 is paid in 31.10.14. Date of Purchse of shares is 30.06.14, then full amt is first added back, apply time adjustement for profits, deduct interim dividend 70000x 3/7 = 30000 in pre period, balance 40000 in post period.

For Cost of Control: Always check the sum total of dividend deducted in Capital Profit (say 10000) from AOP. Out of such total, check how much the holding company received after purchase of shares by it (say 7000). Now remind AS 13 all dividend received which is given out of pre acquistion profits are to be not to be treated as income. It should be reduced from Investments.

Since we are taking dividend receipt from capital profits coloumn,

Entry will be;1. Bank to Divi received  7000 this is only pre div, there may post also

                   2.Div received A/c 7000 + post div

                      To Investments (given from pre acq Profits part) 7000

                      To P& L A/c         Post Div amt.

In sums, whenver dividend is received out of pre, unless specifically told, it has been treated incorreclty, i.e. it has wrongly credited to P& l a/c. So we need to rectify.\

Entry will be Investment a/c Dr.

                    To P&L A/c

In Cost of Conttrol, we keep Investments, so we direclty rectified there only by reducing Cost of control. This treatment we do for both interim & Final if treated wrongly (i.e. in absence of Info)


 I'hv tried to incorporate evry doubts that may arise. Still if u r facing prb, then post ur comments here without any hesitation.

Hope i'll be able to clear ur doubts.

Thank you



1 Like

Prachi Srivastava (Finance) (368 Points)
Replied 28 December 2014

Hi Abhinandan,

Thanks for this detailed explanation. I will need time to understand this explanation.WIll revert back with queries(if I have any) once I am able to relate this explanation with the problems I solve in Advanced Accounts..



ABHINANDAN JAIN (CA Student) (886 Points)
Replied 29 December 2014

Ya i hv written alot.it requires time..so take ur time..inbox me or write here if facing any prob..



abhik (Student CA Final ) (22 Points)
Replied 20 May 2015

great explanation Abhinandan.....really helpful thanks a lot.

I got a query too regarding dividends, i am unable to figure out any logic behind deducting dividenDs apportioned to pre-profits while making statement of consolidated p/l?

Thank you.

ABHINANDAN JAIN (CA Student) (886 Points)
Replied 20 May 2015

Let me first clarify one mistake that i had made in 3rd para of my above Explanation:

Error: "DIVIDEND PROPOSED & adjusted in last year is to be paid in Current year (within 30days of proposal). Then this is regarded as Dividend paid."

Rectified Statment: "DIVIDEND PROPOSED & adjusted in last year (as per AS 4) is to be first approved in Annual General Meeting (AGM) and then the Proposed Dividend is now becomes Dividend payable and mandatorily to be paid within 30 days from date of AGM"

Generally (rather in every case) AGM is conducted in next year of proposal and hence it is said that Dividend (final) proposed in last yr is paid in current year.

@ Abhik


Analysis of Profit is just a reflection of P & L A/c of Subsidiary where we bifurcates the Total Profit earned by subsidiary into two part i.e. before acquistion of shares by holding and post acquistion.

As a Finace student we all know that for proposing dividend, entry will be:

P & L A/c...Dr

To Proposed Dividend

i.e. Debiting to P&L means Dividend is to be deducted from profit & Loss A/c to give effect of entry. In Statment type P&L,we do not passes the entry rather we directly give the effect of entry by reducing or increasing profits.AOP is simply a P&L A/c of subsy in statement form.

Now ur quest:Logic behind deducting dividend from Pre profit:

Answer:As discussed above whether it is pre or post, Profit must be reduced to to give effct of entry of Dividend. AOP is nothing but the P&L A/c and deducting dividend from profit simply means we are passing entry for proposed dividend for previous year (i.e. pre period).

Now you may think that why we are deducting if the standalone balance sheet of subsidiary already contains the effect of entry of dividend as evidenced by info in "Additional infos" in academic ques.Answer is simple we want profit of subsy as per OUR (holding's) date of acquisition i.e. Pre & Post. For this, first we have to nullify the effect of entry of dividend Paid made by subsy by adding back in AOP (If PY P&L A/c shows proposal,then it is to be added in pre wala column,if P&L is missing or no proposal had been made in PY, then add in Post wala column) ) and then after making time adjustments we need to 'apportion' into pre part & post part' and 'deduct' the amount of dividend paid to make the profits of subsy as per our date of acquisition..

In a nutshell,we are simply bifurcating the profits shown by subsy as per our convenience in statement called AOP. Afterall its nothing but P&L a/c of subsy. We first nullify dividend effect from total profits and then deduct from should be pre & post profits.

I think i tried my best to resolve ur current doubt. But still if u are facing or finding any difficulty in understanding any topic w.r.t above discussion/thread, then please do not hesitate to repost ur further doubts if any.




abhik (Student CA Final ) (22 Points)
Replied 21 May 2015

Thanks a lot you made it crystal clear:)

Replied 13 January 2016

Sir,Proposed dividend of subsidiary is to be shown in short term provisions as you said even though Non adjusting even from the year for which the dividend pertains.But my question is that when BOD proposes the dividend the holding company does not get the right to receive.When the same is declared only the holding company or shareholders get right to receive and its all finalised.Therefore the receivable entry for dividend and income recognition arises at that stage only .Please explain the treatment in consolidated balance sheet in both cases, that is proposed dividend and dividend declared .

ABHINANDAN JAIN (CA Student) (886 Points)
Replied 13 January 2016

please go through below mentioned forum where i'hv discussed your topic.

If you still feel that your question is not resolved, then get back to here or inbox me for your further doubts.

KASHISH KALRA (i am cleared IPCC Grp1 and IPCC Grp 2 Result awaied .Persuing B.com by kuk)   (28 Points)
Replied 01 June 2019


I want to ask you question below, Please suggest me:-

Sir, i have a company which have a subsidiary & associate.  Holding Company acquire subsidary company on 07.09.2017 and in the subsidary books as on 31.03.2017, proposed dividend  entry is made and route through P&l and Agm is on 27.09.2017. Please tell me when i am doing first time consolidation, Whether I have to calculate Pre & Post Acquisition Dividend, Please specify me about all the treatment, i am confused

Thanks & Regards,

Kashish Kalra

deepak kumar (2 Points)
Replied 04 June 2019

Can any one answer my below mentioned question ? Miscellaneous Issues Relating to Consolidation, Question- Loan raised by parent company which is further used in acquiring the shares of subsidiary, then borrowing cost incurred by parent is capitalised if subsidiary uses that funds to produce a qualifying asset. I'm cleared about the entry i.e. Qualifying Asset DR to Consolidated Retained Earnings. However, I'm not cleared about the creation of Deferred Tax liability on the above transaction in CFS. Plzz anyone help me to get an answer to my question

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