A company declares a final dividend of 5 cents per share on 15 January 20X6. The company's year-end was 31 December 20X5. How should this dividend be treated in the financial statements for the year ended 31 December 20X5?

Answer options:

Recognized as a liability and deducted from retained earnings

Disclosed in the notes to the financial statements only

Recognized as an expense in the statement of profit or loss

Ignored completely

How to approach this question

Determine if the obligation existed at the reporting date. If not, it cannot be recognized as a liability.

Full Answer

B.Disclosed in the notes to the financial statements only✓ Correct

Under IAS 10 Events after the Reporting Period, dividends declared after the reporting date do not meet the criteria of a present obligation at the reporting date. Therefore, they are not recognized as a liability but are disclosed in the notes.

Common mistakes

Accruing for proposed dividends that haven't been formally declared before year-end.

Question 28 All questions Question 30

Practice the full ACCA FA — Financial Accounting Practice Exam 2

65 questions · hints · full answers · grading

More questions from this exam

Q01BioGenix Ltd, a biotech startup, is deciding whether to disclose a highly uncertain contingent li...Easy Q02Which of the following bodies is primarily responsible for issuing International Financial Report...Easy Q03Which of the following are the primary responsibilities of the directors of a limited liability c...Medium Q04Titanium Forge Co, a heavy manufacturing firm, recently incurred the following costs: 1. $50,000 ...Medium Q05A company makes a 1 for 4 bonus issue of shares. The nominal value of the shares is $1. The compa...Medium

View all 65 questions →