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Dividends in cash flow statement8/10/2023 ![]() Taxes on income arise on transactions that give rise to cash flows that are classified as operating, investing or financing activities in a cash flow statement. Alternatively, dividends paid may be classified as a component of cash flows from operating activities in order to assist users to determine the ability of an enterprise to pay dividends out of operating cash flows.Ĭash flows arising from taxes on income should be separately disclosed and should be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities. Alternatively, interest paid and interest and dividends received may be classified as financing cash flows and investing cash flows respectively, because they are costs of obtaining financial resources or returns on investments.ĭividends paid may be classified as a financing cash flow because they are a cost of obtaining financial resources. ![]() Interest paid and interest and dividends received may be classified as operating cash flows because they enter into the determination of net profit or loss. ![]() However, there is no consensus on the classification of these cash flows for other enterprises. Interest paid and interest and dividends received are usually classified as operating cash flows for a financial institution. The total amount of interest paid during a period is disclosed in the cash flow statement whether it has been recognised as an expense in the income statement or capitalised in accordance with the allowed alternative treatment in MASB 27, Borrowing Costs. Each should be classified in a consistent manner from period to period as either operating, investing or financing activities. These disclosures are in addition to the separate disclosures of the nature and amount of extraordinary items required by MASB 3, Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies.Ĭash flows from interest and dividends received and paid should each be disclosed separately. The cash flows associated with extraordinary items are disclosed separately as arising from operating, investing or financing activities in the cash flow statement, to enable users to understand their nature and effect on the present and future cash flows of the enterprise. The second approach to the treatment of an Unclaimed Dividend is used when the company has not transferred the unclaimed dividend amount from the Dividend Account to a separate account.Cash flows associated with extraordinary items should be classified as arising from operating, investing or financing activities as appropriate and separately disclosed. Then, it is added under the head Financing Activities because the amount of dividend that has to flow out of the company (that is Dividend Paid amount which has already been deducted from Financing Activities) remained in the company only since it has not been claimed by the members. ![]() Second, the unclaimed dividend is deducted from the Appropriations, that is, when Net Profit before Tax and Extraordinary Activities is calculated. However, there are two approaches to deal with the treatment of Unclaimed Dividend:įirst, since there is no inflow or outflow of cash, there is no need to show it in the cash flow statement. Since, money raised through the issue of shares finances the company, any item related to shareholding or dividend is shown under the head Financing Activities. Items shown under the head Financing Activities are those that are used to finance the operations of the company. The dividend is transferred from the Dividend Account to the Unclaimed Dividend Account if it is not claimed by the shareholders within 37 days of declaration of dividend.įor the Cash Flow Statement, unclaimed dividend comes under the head Financing Activities. Such a dividend is a liability for the company and it is shown under the head Current Liabilities. If the dividend is not claimed by the members after transferring it to the Dividend Account, it is called Unclaimed Dividend. The dividend payable by the company is transferred to the Dividend Account and is then claimed by the shareholders. The profits earned by a company are distributed to its shareholders monthly, quarterly, half-yearly, or yearly in the form of dividends. ![]()
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