Day: May 3, 2020

A company has declared a final dividend for the year ended 31 March and proposes to pay it on 10 May.

Which of the following is the correct treatment of this item in the financial statements for the year ended 31 March?

Select ONE answer:

1. Show the amount of the dividend as an expense in the profit and loss account and as a current liability in the balance sheet.
2. Show the amount of the dividend as a deduction in the profit and loss appropriation account and as a current liability in the balance sheet.
3. Show the amount of the dividend as a deduction in the profit and loss appropriation account and reduce the bank balance shown in the balance sheet accordingly.
4. None of the above.

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct – A dividend is an appropriation of profit, not an expense.
2. Correct – Dividends are a share of profit not an expense. As the dividend is not yet paid but will be paid within one year it is a current liability.
3. Not correct – The bank balance won’t be reduced until the dividend is paid.
4. Not correct

 

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