Treatment of Proposed Dividend in Cash Flow Statement
Dividend can appear in the question in the following names:
(1) Proposed dividend:
Meaning: It is the dividend proposed by the board of directors after finalization of Accounts but is to be approved by the shareholders in the annual general meeting( held next year). When approved, It must be paid within 30 days.
It is an appropriation of profits, debited to Surplus i.e., Balance in Statement of Profit and Loss.
Paid in the same year, it is declared.
It cannot be recorded in the Balance sheet, but is recorded as Contingent Liability in the Notes to Accounts.
Treatment: Previous year proposed dividend is added while calculating profit before tax and the same (previous year proposed dividend - Unpaid or Unclaimed Dividend) is considered as outflow in financing activities.
(2) Interim Dividend:
Meaning: It is the dividend declared by the board of directors within the financial year if permitted by the articles of association of the company. However, It is not required to be approved by the shareholders, but must be paid within 30 days of its declaration.
As, It is an appropriation of profits, debited to Surplus i.e., Balance in Statement of Profit and Loss.
Interim dividend is paid in the same year, it is declared.
It appears outside the balance sheet as additional information.
Treatment: It is added while calculating profit before tax and the amount paid(Declared - Unpaid or Unclaimed) is considered as outflow in financing activities.
Dividend on Preference Shares:
Dividend on Preference Shares is to be paid before Equity Dividend, at a particular rate as agreed, only out of available profits.
It is proposed by the Board of Directors and declared (approved) by the shareholders in AGM (held next year) like Proposed (Final) Dividend on Equity Shares.
It appears outside the balance sheet as additional information.
Treatment: Same as in case of Proposed Dividend on Equity Shares.