RETAINED EARNINGS REPORT

RETAINED EARNINGS
CHAPTER 19

DEFINITION:
Retained Earnings represents the cumulative balance of:
 Periodic net income or loss
 Dividend distribution
 Prior periodic errors
 Changes in accounting policy, and
 Other capital adjustments



The illustrative statements of financial position and statement of changes in equity in IAS 1 and IAS 8 still maintain the title “retained earnings”

2 KINDS OF RETAINED
EARNINGS


Unappropriated



Appropriated

UNAPPROPRIATED
RETAINED EARNINGS
 Represent

that portion which is free and can be declared as dividends to shareholders

APPROPRIATED RETAINED
EARNINGS


Represent that portion which has been restricted and therefore is not available for any dividend declaration

When

the retained earnings account has a debit balance, it is called a “deficit”

DIVIDENDS

Dividends

are distribution of earnings or capital to the shareholders in proportion to their shareholdings







When dividends are formally declared by the board of directors, three dates are essential for accounting purposes, namely: Date of Declaration
Date of Record
Date of Payment

Illustration:
“The Board of Directors at their meeting on December 31, 2014 declared a dividend of P5 per share, payable
March 31, 2015, to shareholders of record on January 31, 2015.”

Illustration:




Date of Declaration: December 31,
2014
Date of Record:
January 31, 2015
Date of Payment: March 31, 2015

RECOGNITION OF DIVIDEND


When the dividend is declared by management or the board of directors if the local jurisdiction does not require further approval
Under Philippine jurisdiction, the declaration by the board of directors does not require further approval

RECOGNITION OF DIVIDEND


When the declaration of the dividend by the management or the board of directors is approved by the relevant authority, ex. the shareholders, if the local jurisdiction requires such approval

RECOGNITION OF DIVIDEND
Simply

stated, the liability for the dividend