Join Your Exam WhatsApp group to get regular news, updates & study materials HOW TO JOIN

Accounting for unusual dividends

Accounting for unusual dividends

1.Property dividend. Property dividends

A corporation with a small number of shareholders might decide to issue some asset other than cash or company stock as a dividend. Property that might be issued could include merchandise normally held for sale or investments in stocks or bonds. The dividend needs to be recorded at fair value, so the dividend occurs in two steps.

As an example, let’s assume that Friends Company wants to distribute 10,000 XYZ Corporation shares as a dividend to its common shareholders. The shares have a current book value of $40 per share, but the market value is $50 per share. Before issuing the dividend, Friends must write the asset up to market value. The gain (or loss if applicable) is reported on the income statement. Notice that this amount is the difference between book and market value multiplied by the number of shares being issued.

Account NamesDebitsCredits
Investment in XYZ Corporation100,000 
       Gain on investment 100,000

When the shares are issued as a dividend, Friends Company will record the following entry (i.e., $50 x 10,000):

Account NamesDebitsCredits
       Investment in XYZ Corporation 500,000
  1. Scrip dividends and dividend re-investment plans (DRIP)

Sometimes a firm might want to issue a dividend but doesn’t currently have enough cash on hand to do so. In these situations, the company can issue a scrip dividend, which gives the dividend receiver a choice between a note promising future payments (and sometimes additional interest) and shares of common stock. Unlike a regular stock dividend, some shareholders will choose the note, meaning shareholders who choose common stock will end up with a higher ownership percentage after the dividend.

DRIP plans, also known as dividend re-investment plans are similar to scrip dividends. Shareholders are given the option of reinvesting cash dividends in exchange for more shares. As with scrip dividends, those shareholders who choose to participate will increase their percentage ownership in the company.

Accounting for unusual dividends

At CAKART you will get everything that you need to be successful in your CA CS CMA exam – India’s best faculty video classes (online or in pen drive) most popular books of best authors (ebooks hard copies) best scanners and all exam related information and notifications.Visit and chat with our counsellors any time. We are happy to help you make successful in your exams.


Click Here to download FREE CA CS CMA Text Books.

Leave a comment

Your email address will not be published. Required fields are marked *