Cash Dividends Shares in lieu of cash dividends
- If the equity securities are measured at FVPL
/ FVOCI / cost, dividends earned are
considered as income.
Dividend on- between date of declaration and the
record date. (shares carry with them the right to rcv
dividends)
Ex-dividend – between date of record and date of
payment. (original shareholder has the right to rcv
the dividends on payment date)
When to recognize? DATE OF DECLARATION bcoz
the right was alrdy acquired.
Property Dividends / Div in Kind
- Recorded at fair value.
Liquidating Dividends
- Represent return of invested capital (not an
income)
- When the corp is dissolved / liquidated but
commonly applied in cases of wasting asset
corporations.
- May be designated as partly income and
partly return of capital.
Share Dividends
- Issuing entity’s own shares. (if shares of
another entity, dili na share dividends but
property divends na.)
2 kinds: same class or diWerent class
[stock rights] Not Accounted for Separately:
- This is Income à at fair value of the shares - Treated as an embedded derivative à so, the
received. value is not separated.
o If no FV à cash dividends that would - Receipt of right à memo entry
have been received. - If the stock rights are sold à credit the
investment sa value sa cash received.
Cash received in lieu of share dividends
“as if” approach – dividends are assumed to be
received and subsequently sold at the cash
received. (followed for financial accounting
purposes) à Gain or Loss
*TN BIR Approach – the cash received is dividend
income
Share right or stock right
- A legal right granted to shareholders to
subscribe for new shares issued by a
corporation at a specified price during a
definite period.
- Inherent in every share (one for ever yshare)
- Goal: to preserve their equity interest in the
corporation.
2 schools of thought:
1. Share rights are accounted for separately
2. Share rights are not accounted for separately
[stock rights] Accounted for Separately:
- Measured initially at fair value.
- If fair value is not given, refer to theoretical or
parity value of the share right
o When to use? “no known market
value”
o 2 formulas: [right on] & [ex-right]
- Expiration à Loss on share rights.