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What is Dividend?

When an investor invests his money in shares, it will be the source of the company who issued the shares. That company gives some part of profit to all shareholders or investors who invested their money in company’s shares. Part of company’s profit which is given to shareholder is called dividend. Except cumulative pref. shares, company will not give dividend to equity and pref. shareholders, if company has not earned profit.

Dividend is reward of sacrificing the money which is paid by shareholders in the form of shares. Shareholders have right to get dividend but they can not fix the amount of dividend because there are many factors which affects the rate of dividend. Sometime company may interested for ploughing back of profit, at that time shareholders can not demand for dividend.


If dividend is fixed, then it is the responsibility of accountant to show it in profit and loss appropriation account. This account is opened after making the profit and loss account for giving dividend and other adjustments. Accountant will pass the following adjustment entries.




Because, proposed dividend is not given so, it is liability of company to pay. So, its account will be credited and it will go to balance sheet of company. If company declares and paid dividend in the end of year, then following entry will be passed.



At this time dividend account will be closed after transfer to profit and loss appropriation account and payment amount will be deducted from bank account in balance sheet.


FAQ relating to dividend


Q: - 1 Is it possible, company has earned profit but board of directors did not declare dividend?



Ans: Yes, it is possible that company has earned the profit and its board of directors did not declare dividend because, board of directors think that if company will issue the dividend, it will disturb the financial position. At that time, they understand what is the better and they decide not to declare dividend.


Q:-2 In Which proportion is dividend given?



Ans. Dividend is given in the proportion of paid up capital



For example, suppose, paid up capital is $ 100000 and rate of dividend is 15%, then value of dividend

15/100 X 100000 = 15000



Q: - 3 What is simplest definition of Dividend?



Ans. Corporate earning and profits not retained in the business and when distributed among shareholder are known as dividend.



Q: - 4. Is dividend given on calls in advance?



Ans. No, because shareholders are given interest on calls in advance and this amount is just loan to company before the date, when amount of call is payable by shareholder .For that time calls in advance will be adjusted with payable amount of calls. From that date it will be included in paid up capital.



Q: - 5 Is dividend given on Call in Arrears?



Ans. No, because it is not the part of paid up capital. It means that it is which company has demanded but not received. So, it is like debt to shareholder and company has right to get 5% annual interest on this amount from shareholder.


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