Retained Earnings Mrs. Paz Castro

Summary of the Effects of Dividends and Share Splits

Effect on:
Declaration of Cash Dividends
Payment of Cash Dividend

		s	Dividends	Dividends	Split
Retained Earnings	Decrease	-	Decrease	Decrease	-
Ordinary Shares	-	-	Increase	Increase	-
Share Premium	-	-	Increase	-	-
Total Shareholders’ Equity	Decrease	-	-	-	-
Total Liabilities	Increase	Decrease	-	-	-
Total Assets	-	Decrease	-	-	-
Shares Outstanding	-	-	Increase	Increase	Increase

Declaration and Distribution of
Small Share Large Share Share

Dividends on Preference and Ordinary Shares

• A corporation may issue both preference and ordinary shares.
• When the board of directors declares cash dividends, preference shareholders are entitled to dividends before ordinary shareholders receive any distribution.
• The dividend is stated as a percentage of the par value preference shares.
• The corporation is not obliged to declare dividends annually.

• When the board does not declare dividends, the dividends for cumulative preference shares accumulate; these are called dividends in arrears.
• Preference shares may contain one of the following combinations of features:





Non-cumulative and non-participating Non-cumulative and participating Cumulative and non-participating Cumulative and participating