When the board of directors establishes a longer-than-normal time period between the date of record and the date of payment, the dividend is classified as a liability dividend. The arrangement may call for the accrual of interest on the liability and the distribution of notes to the stockholders (known as scrip). The only difference in accounting between cash and liability dividends is the accrual of interest. While there is support for treating interest as an expense and reporting it on the income statement, there is also a good rationale for considering these amounts as additional dividends. Liability dividends are seldom encountered in practice.
Liability Dividends FAQs
Liability dividends are dividends where the board of directors establishes a longer-than-normal time period between the date of record and the date of payment.
The arrangement may call for the accrual of interest on the liability and the distribution of notes to the stockholders (known as scrip). The only difference in accounting between cash and liability dividends is the accrual of interest.
While there is support for treating interest as an expense and reporting it on the income statement, there is also a good rationale for considering these amounts as additional dividends. Liability dividends are seldom encountered in practice.
Liability dividends are seldom encountered in practice.
The International Financial Reporting Standards (IFRS) do not address the accounting for subsidiary, joint arrangement and associate company transactions.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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