How can we solve proposed dividend in cash flow statement ?

Question

Answer

Add current year proposed dividend while calculating NET PROFIT BEFORE TAXATION AND EXTRAORDINARY ITEMS.
Subtract last year proposed dividend from FINANCING ACTIVITIES.

Answer

See amardeep you are correct that this treatment is not in some book for ex we study by sc sharma and this treatment is only given in sc but in TS grewal this treatment is not given but from now the treatment that this year will be added in operating and previous year will be deducted will be followed . this is the new circular . in the beginning everyone was saying sc is wrong but now ac is correct

Answer

First you need to understand what proposed dividend actually is . Proposed dividend is the dividend declared or proposed to be distributed among the shareholders of the company during a financial year which will be paid in the next financial year .

Answer

Understanding Proposed Dividend in Cash Flow Statement
Proposed dividends affect the cash flow statement, particularly in the financing activities section. Here’s how to address and solve it effectively:
1. Definition of Proposed Dividends
- Proposed dividends refer to the amount a company plans to distribute to its shareholders but has not yet been paid out.
- These are typically declared after the reporting period closes but before the financial statements are finalized.
2. Impact on Cash Flow Statement
- Proposed dividends do not affect cash flow until they are actually paid.
- When preparing the cash flow statement, focus on actual cash transactions.
3. Treatment in Cash Flow Statement
- Operating Activities: Proposed dividends are not included here as they do not pertain to day-to-day operations.
- Financing Activities:
- The cash flow statement should reflect only the dividends paid during the reporting period.
- If the proposed dividend is declared and paid in the same period, it will appear as an outflow in financing activities.
4. Steps to Solve Proposed Dividend in Cash Flow Statement
- Identify the Proposed Dividend: Review the shareholder announcement or board minutes to determine the proposed amount.
- Adjust for Payments:
- If the proposed dividend was declared before the cash flow statement period but paid within it, include the payment under financing activities.
- If proposed but not paid, exclude it from the cash flow statement.
5. Final Reporting
- Ensure the cash flow statement only reflects actual cash transactions, maintaining clarity and accuracy.
- Provide a note in financial statements regarding proposed dividends for transparency.
By following these guidelines, you can effectively address proposed dividends in the cash flow statement, ensuring compliance and clarity in financial reporting.

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