Ex-dividend or ex-date is one business day before the record date. It is the date
on or after which a security is traded without a previously declared dividend or
distribution
CASH DIVIDENDS
A cash dividend is a pro rata distribution of cash
to shareholders.
Declared solely by the BODs.
For a cash dividend to occur, a corporation
must have:
1. retained earnings,
2. adequate cash, and
3. declared dividends
Illustrative Problem
Upon distribution:
Shares Distributable 150,000
Ordinary Shares 150,000
Learning Activity 1
Mar. 31 Sold 100,000 shares of ordinary shares for P20 per share.
Non-Cumulative Cumulative
The board failed to declare dividends for the past two years. This
year, the BOD declared P300,000 cash dividend.
Required:
Calculate the total dividends and the dividend per
share paid to each class of stock assuming:
1. Preference shares are non-cumulative and non-
participating
2. Preference shares are non-cumulative and
participating
3. Preference shares are cumulative and non-
participating
4. Preference shares are cumulative and participating
1
Preference shares are non-cumulative and non-participating
Preference Ordinary Total
Outstanding Share
Capital 500,000 1,000,000 1,500,000
Shares entitled to
dividends 5,000 20,000 25,000
Current Dividends
Current Dividends
500,000 x 8% 40,000 40,000
Dividend in arrears
Dividend in arrears
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SHARE SPLITS
A share split involves the issue of additional
shares to shareholders according to their
percentage of ownership.
In a share split, the number of shares is
increased in the same proportion that legal
capital per share is decreased.
A share split has no effect on total share
(contributed) capital, retained earnings, or
shareholders’ equity.
It is not necessary to formally journalize a share
split just a memorandum entry.
Share Split
May be in the form of
a. Split up or share split proper – original shares
are called in for cancelation and replaced
by a larger number accompanied by a
reduction in the par value or stated value.
Example: An entity has 10,000 shares issued and
outstanding with P100 par value. If the shares
are split up 5 to 1, the new capitalization would
be 50,000 shares with P20 par value.
Share Split
A stock split does not affect total share capital, retained earnings, or
shareholders’ equity. However, the number of shares increases and
book value per share decreases.
Before After
Stock Split Stock Split
Shareholders’ equity
Ordinary shares P500,000 P500,000
Retained earnings 300,000 300,000
Total shareholders’ equity 800,000 800,000
Issued shares 50,000 100,000
Book value per share P 16.00 P 8.00
RETAINED EARNINGS
Retained earnings is the cumulative balance of
the following: net income or loss for the period,
dividend declaration, prior period errors,
changes in accounting policy, reclassifications
of some components of OCI, and other capital
adjustments.
IFRS term: accumulated profits
IAS 1 and IAS 8 still maintain the title “retained
earnings”
Kinds of Retained Earnings
Unappropriated Appropriated
To compute (basic):
Retained earnings, opening balance
+ Net earnings (or - net loss)
- Dividends
+ (-) prior period error/s
= Retained earnings, ending balance
DEFICIT (accumulated losses)
Shareholders’ equity
Share capital
Common shares
Retained earnings (deficit) $800,000
Total shareholders’ equity (50,000)
$750,000
On Jan. 15, 20XX, the BOD declared a 4% share dividend for distribution on
Mar. 31 when the stock’s market price was P110. On Sept. 5, 20XX, the BODs
declared a 3 for 1 share split; the stock’s market price was P150 per share.
Required:
1. How many shares were outstanding on Jan. 2, Mar. 31, and Dec. 31?
2. Prepare all the necessary journal entries.