Retained Earnings Mrs. Paz Castro

The fair market value of the investment at the declaration date was P950,000. There was no change in fair value on settlement date. The

entries to record the dividend declaration and distribution are as follows:
Retained Earnings 950,000 Property Dividends Payable 950,000
To record declaration of dividend. Property Dividends Payable 950,000
Investment in Equity Securities 500,000 Gain on Distribution of Property
Dividends 450,000 To record distribution of dividend.

Because of the use of fair value, a problem will arise at settlement date if the fair value of the assets to be distributed has changed. The following offers the pertinent guidance:

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• Per IFRIC 17, paragraph 13, at the end of each reporting period and at the date of settlement, the entity shall review and adjust the carrying amount of the dividend payable, with any changes in the carrying amount of the dividends payable recognized in equity as adjustments to the amount of the distribution.
• Paragraph 14, when an entity settles the dividends payable, it shall recognize the difference, if any, between the carrying amount of the assets distributed and the carrying amount of the dividend payable in profit or loss.

IFRS 5, paragraph 5A, states that the classification, presentation and measurement requirements in this IFRS is applicable to a non- current asset (or disposal group) that is classified as held for distribution to owners.

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IFRS 5, paragraph 5A, states that the classification, presentation and measurement requirements in this IFRS is applicable to a non- current asset (or disposal group) that is classified as held for distribution to owners.

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Paragraph 15A provides that an entity shall measure a non-current asset (or disposal group) classified as held for distribution to owners at the lower of its carrying amount and fair value less costs to distribute.

Share Dividends

• A corporation may distribute to shareholders additional shares of the company’s own share as share dividends.
• This type of dividend affects only the accounts within the shareholders’ equity.
• Share dividends increase the total share capital and decrease the retained earnings account.
• Because both of these are components of shareholders’ equity, total shareholders’ equity is unchanged.