Retained Earnings Mrs. Paz Castro

The receipt of a share dividend does not alter the relative position of a shareholder. No profit is realized by the shareholders.


□ LARGE SHARE DIVIDEND

If the share dividend is 20% or more of the previously outstanding shares such that the effect is to reduce materially the market value per share, then only the par or stated value is credited to ordinary shares with a corresponding debit to retained earnings.

• Ex.: Assume that Oishi! declared a 20% share dividend on its 20,000 issued and outstanding P50 par value shares. The company will issue additional 4,000 shares due to the share dividend. The entries will be:

Retained Earnings 200,000
Shares Distributable 200,000 To record declaration of 20% share dividends. Shares Distributable 200,000
Ordinary Shares 200,000 To record issuance of share dividends.

• The account titles used to record a large share dividends. The balance in the account Share Premium remained the same; this is because large share dividends are recorded at par value.

	Before Dividends	After Dividends	Increase (Decrease)
Ordinary Shares, P50 par, 20,000 shares issued and outstanding	P1,000,000	P1,200,000	P200,000
Share Premium	200,000	200,000	-
Total Share Capital	P1,200,000	P1,400,000	P200,000
Retained Earnings	650,000	450,000	(200,000)
Total Shareholders’ Equity	P1,850,000	P1,850,000	-
Shares Issued and Oustanding	20,000	24,000	4,000