Liquidating dividend ifrs

With the exception of stock dividends, all the other dividends reduce the stockholder’s equity in the corporation. Cash = 3,075,000 Dividends paid based on other than retained earnings are called “liquidating dividends”, as a return of contributed capital rather than a distribution of retained earnings. Retained Earnings 50% [30,000 share x ] = 300,000 [Credit].

Retained Earnings [Cash Dividend Declared] = 2,000,000 [Credit]. Date of record, April 15, 2009 Memorandum entry that the firm will pay a dividend to all stockholders of record as of today, the date of record. Retained Earnings [Property Dividend Declared] = 0,00 [Credit]. The accounting treatment at the date of declaration consists of debiting retained earnings or scrip dividends declared and crediting notes payable to stockholders or scrip dividend payable. Retained Earnings [Scrip Dividends Declared] = 3,000,000 [Credit]. The transaction is made by a capitalization of retained earnings resulting in a reduction of retained earnings and an increase in some contributed capital accounts. Additional Paid-in-Capital from Stock Dividend 30,000 2. Common Stock Dividend Distribution = 120,000 [Credit].

[IAS 32.20] Illustration – one party has a choice over how an instrument is settled When a derivative financial instrument gives one party a choice over how it is settled (for instance, the issuer or the holder can choose settlement net in cash or by exchanging shares for cash), it is a financial asset or a financial liability unless all of the settlement alternatives would result in it being an equity instrument.

[IAS 32.26] Contingent settlement provisions If, as a result of contingent settlement provisions, the issuer does not have an unconditional right to avoid settlement by delivery of cash or other financial instrument (or otherwise to settle in a way that it would be a financial liability) the instrument is a financial liability of the issuer, unless: Puttable instruments and obligations arising on liquidation In February 2008, the IASB amended IAS 32 and IAS 1 Presentation of Financial Statements with respect to the balance sheet classification of puttable financial instruments and obligations arising only on liquidation.

In this example even though both instruments are legally termed preference shares they have different contractual terms and one is a financial liability while the other is equity.

[IAS 32.8] Financial instrument: a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

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IAS 39 deals with, among other things, initial recognition of financial assets and liabilities, measurement subsequent to initial recognition, impairment, derecognition, and hedge accounting.

IAS 39 is progressively being replaced by IFRS 9 as the IASB completes the various phases of its financial instruments project.

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They are treated as a reduction of contributed capital, either additional paid-in-capital or a special contracontributed capital account, designated as “Contributed Capital Distributed” as a “Liquidating Dividend”. Common Stock Dividend Distributable = 300,000 At the time of distribution the following journal entry is required: [Debit].

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