WHAT IS DIVIDEND?

 DIVIDENDS OFTEN REFERS TO THE CASH DIVIDENDS THAT A

CORPORATION PAYS TO ITS STOCKHOLDERS (OR
SHAREHOLDERS). DIVIDENDS ARE OFTEN PAID QUARTERLY,
BUT COULD BE PAID AT OTHER TIMES. FOR A DIVIDEND TO BE
PAID, THE CORPORATIONS BOARD MUST FORMALLY
APPROVED/DECLARE THE DIVIDEND. HENCE, THE BOARD OF
DIRECTORS MAY DECIDE THAT A DIVIDEND WILL NOT BE
DECLARED.
DIVIDENDS ARE  DIVIDENDS OUT OF EARNINGS
CLASSIFIED AS  D I V I D E N D S O U T O F C A P I TA L

FOLLOWS:
DIVIDENDS OUT OF EARNINGS
- Dividend declared from retained
corporate earnings is called dividend out
of earnings. This is considered a
distribution of profits to share holders.
DIVIDENDS OUT OF CAPITAL
- When capital is returned to shareholders in the
form of dividends, it is known as dividends out
of capital or liquidating dividends.
- Liquidating dividends are paid to shareholders
when the corporation is dissolved and
liquidated.
DATES INVOLVED ON DIVIDENDS
DECLARATION
WHEN DIVIDENDS ARE FORMALLY DECLARED BY THE BOARD OF DIRECTORS, THERE ARE THREE
IMPORTANT DATES TO CONSIDER FOR ACCOUNTING PURPOSES, NAMELY:
1.) DATE OF DECLARATION – THIS IS THE DATE ON WHICH THE BOARD OF DIRECTORS ADOPTS A
RESOLUTION FORMALLY AUTHORIZING THE PAYMENT OF DIVIDENDS TO SHAREHOLDERS . LIABILITY
DIVIDENDS MUST BE RECOGNIZED ON THIS DATE.
2.) DATE OF RECORD – THIS IS THE DATE ON WHICH THE STOCK AND TRANSFER BOOK OF A
CORPORATION WILL BE CLOSED FOR REGISTRATION. ONLY THOSE REGISTERED SHAREHOLDERS AS OF
SUCH DATE SHALL BE ENTITLED TO RECEIVE DIVIDENDS.
3.) DATE OF PAYMENT – THIS IS THE DATE ON WHICH THE DIVIDEND DECLARED IS TO BE PAID. A
JOURNAL ENTRY RECORDING THE PAYMENT OR DISTRIBUTION OF DIVIDEND IS TO BE MADE.
EXAMPLE OF DIVIDEND DECLARATION
THE BOARD OF DIRECTORS OF BIG HIT CORPORATION HAD THEIR MEETING ON NOVEMBER 23, 2020 AND
DECLARED A DIVIDEND OF P20 PER SHARE TO BE PAID ON FEBRUARY 14, 2021, TO SHAREHOLDERS OF
RECORD AS OF JANUARY 16, 2020.

THE DATES INVOLVED ARE:

DATE OF DECLARATION: NOVEMBER 23, 2020
DATE OF RECORD: JANUARY 16, 2020
DATE OF PAYMENT: FEBRUARY 14, 2021
  CASH DIVIDENDS

 P R O P E RT Y D I V I D E N D S

FORMS OF DIVIDENDS  LIABILITY DIVIDEND/SCRIP

DIVIDENDS

 SHARE DIVIDENDS
 CASH DIVIDENDS

 Cash dividends refers to dividends payable in cash. Cash dividends

are the most common type of dividends. The term dividends,
standing alone normally implies the distribution of cash.

Cash dividend may be expressed as:

• A certain peso amount per share – this is especially true to no par

value shares. For instance, a dividends declared of P200 per share.

• A certain percent of par or stated value. For example, a 10%

dividends is declared, thus P100 par value share will receive P10 as
dividend.
AT T H E D AT E O F C A S H D I V I D E N D S D E C L A R AT I O N , A C U R R E N T L I A B I L I T Y I S
R E C O G N I Z E D T H R O U G H A J O U R N A L E N T RY A S F O L L O W S :

R E TA I N E D E A R N I N G S XX

C A S H D I V I D E N D S PAYA B L E XX

W H E N T H E D I V I D E N D S D E C L A R E D A R E PA I D , T H E E N T RY T O R E C O R D T H E
PAY M E N T I S A S F O L L O W S :

C A S H D I V I D E N D S PAYA B L E XX

CASH XX
PROPERTY DIVIDENDS

Property dividends are dividends payable in non-cash

assets of the corporation. Statement of IFRIC 17 states
that “an entity shall measure a liability to distribute non-
cash assets as dividends to its owners as a fair value to the
asset to be distributed.”
The pro forma entry to record the declaration of property dividends is:

Retained earnings xx
Property dividends payable xx

When property dividends are paid or distributed, the entry is:

Property dividends payable xx
Non-cash asset account xx
PROPERTY DIVIDENDS ILLUSTRATED
To illustrate a property dividend, assume that Big Hit Company has 20,000 shares of stock with a
par value of P100. The retained earnings account showed a balance of P500,000.

Big Hit Company owns 10,000 shares of ABC Company which were purchased at P150,000. On
November 15, 2020, the market value of such shares is P20 per share or a total of P200,000

On November 15, 2020 the board of directors of Big Hit Company declared all the ABC
Company shares as property dividends, payable on January 10, 2021 to shareholders of record
December 15, 2020
1.) The entry to record the declaration of property dividend is:
Retained earnings P200,000
Property dividends payable P200,000

2.) On December 31, 2020, the ABC shares have a market value of P22 per share.

The entry to record the change in fair value of the shares:

Retained earnings P20,000
Property dividends payable P20,000

3.) On January 10, 2021, the fair value of ABC share further increased to P25 per share

The entry to record the increased in fair value of the shares:

Retained earnings P30,000
Property dividends payable P30,000
4.) The entry to record the payment of dividend on January 10, 2021:
Property dividends payable P250,000
Investment in Equity (ABC Co.) P150,000
Gain on distribution of property dividends P100,000
LIABILITY DIVIDENDS

Liability dividends is sometimes called “scrip dividends”.

These are actually deferred cash dividends. A scrip dividend
is declared when the corporation has enough retained
earnings but do not have sufficient cash to cover working
capital requirements.

Dividend payable bonds are also called liability dividends

(these will be discussed in higher accounting courses).
LIABILITY DIVIDENDS ILLUSTRATED

YG Entertainment Company declared a scrip dividends in the amount of P100,000 payable in four months at 18%
interest rate.

1.) The entry to record the declaration of the scrip dividend is:
Retained earnings P100,000
Scrip Dividends payable P100,000
2.) The entry to record the payment of scrip, four months later is:
Scrip dividends payable P100,000
Interest expense 6000
Cash P106,000

Interest: 100,000 x 18% x 4/12 = P6000

Share dividends is called bonus issue. Under IFRS, these are
dividends payable in the form of shares of stock by the declaring
corporation.
SHARE DIVIDENDS
Share dividends are classified into two.

1.) Small share dividend

- If the share dividends declared is less than 20%, it is considered

as small share dividends.

- The amount charged to retained earnings is equal to the fair value

of the shares declared at the date of declaration. The fair value
however, must not be lower than the par value or stated value.
Otherwise, the amount debited to retained earnings is equal to the
par value or stated value.

2.) Large share dividends

- If the share dividends declared is over 20% or more, it is

considered large share dividends.

- The amount charged to retained earnings is equal to the par value

or stated value of the shares declared at declaration date.
 SHARE DIVIDENDS ILLUSTRATED
Assume that YG Entertainment Corporation is authorized to issue 10,000 ordinary shares with P20 par value. It has 8,000 shares
issued and outstanding at par value. A 10% share dividend is declared by the board of directors when the fair market value of the
share is P30 per share.

CASE 1

Retained earnings available for dividends is P40,000.

1.) The entry to record the declaration of share dividends is:

Retained earnings P24,000
Share dividends distributable P16,000
Share premium 8000
Computations:
10% of 8,000 shares P800
Market value per share 30
Total retained earnings capitalized P24,000
Par value total (20x800) 16,000
Share premium P8,000
2.) The entry to record the distribution of share certificates is:
Share dividends distributable P16,000
Share capital 16,000

CASE 2
Assume that Big Hit Corporation is authorized to issue 200,000 ordinary shares with a par value of P100 per share. It has 150,000
shares issued and outstanding at par. A 20% share dividends declared by the board of directors when the fair market value is P120
per share.

Retained earnings unappropriated amounts to P4,000,000.

1.) The entry to record the declaration of share dividends:

Retained earnings P3,000,000
Share dividend distributable P3,000,000
Computations:
20% x 150,000 shares 30,000 shares
Par value per share100
Total debit to retained earnings P3,000,000
2.) The entry to record the distribution of share certificates is:
Share dividends distributable P3,000,000
Share capital P3,000,000