Retained Earnings

• Section 42 of the Revised Corporation Code states that dividends should only be declared out of the unrestricted retained earnings. Thus, dividends cannot be declared out of the legal capital of the corporation for the security of its creditors.
• Any form of dividend declaration should be based on the total subscription of a shareholder and not merely on the shares already paid.
• Subscribers are considered shareholders from the time their subscriptions are accepted by the corporation and not from the time they are issued stock certificates
• Cash dividends are declared solely by the board of directors while share dividends will necessitate the concurrence of at least two-thirds of the outstanding shareholders
• Paragraph 10 of IFRIC provides that the liability to a pay a dividends shall be recognized when the dividend is appropriately authorized and is no longer at the discretion of the entity.
• Dividends is appropriately authorized on dates: 1. Declaration of the dividend 2. Dividend is declared
• IFRIC 17 Distributions of Non-cash assets to owners was developed by the International Financial Reporting Interpretation Committee and Issued by the International Accounting Standards Board in November 2008. Its effectivity date is July 1, 2009
• A list of shareholders entitled to the declared dividends is prepared at the date of record
• Date of payment - the corporation settles its liability on this date.
• In declaring cash dividends, a corporation must have both an appropriate amount of retained earnings and the necessary amount of cash.
• Dividends on par value shares are stated as a certain percentage of the par value.
• As to no-par value shares, the dividends are stated at a certain amount per share
• When the board of directors declare a cash dividend, an entry is made debiting Retained Earnings and Crediting Cash Dividends Payable
• Treasury shares are deducted from the Share Capital in recording for the declaration of dividend
• Cash dividends payable are reported as current liabilities in the statement of financial position.
• Cash dividends decreases the total assets and total shareholders' equity.
• With the exception of treasury shares, all issued and fully paid shares, and all subscribed par value shares are entitled to dividends when declared.
• The subscribe shares must be par value shares.
• No-par value shares are considered as legally issued only when fully paid.
• Unissued shares, subscribed no-par shares and treasury shares are not entitled to dividends.
• Property dividends / Dividends in Kind - a distribution to shareholders that is payable in non-cash assets
• IFRIC 17, PARAGRAPH 11 - an entity shall measure a liability to distribute non-cash assets as a dividends to its owners at the fair value of the assets to be distributed.