DIVIDENDS

Dividends are distribution to shareholders of corporate earnings in proportion to the

number of shares held by them. Distributions may take the form of cash, non-cash
assets, notes or other evidence of corporate indebtedness, and shares of the
company’s own share capital.

The following dates are essential in formal dividend announcement or statement:

1. Date of declaration – this is the date when the board of directors approved the
resolution to distribute dividends. The liability of the corporation to the
shareholders is recorded on this date.
2. Date of record – this is the date when the company determines the shareholders
who are entitled to the receipt of declared dividends. No entry is required on
this date.
3. Date of payment – this is the date when dividends declared are paid or
distributed to the shareholders. The liability recognized on the date of
declaration is extinguished on this date.

CASH DIVIDENDS

NINETY-ONE Corporation has 50,000 shares of P50 par value of ordinary share
capital outstanding as of June 20, 2026. On this date, the Board of Directors declared
a cash dividend of P30 per share to shareholders of record of July 27, 2026, payable
on September 01, 2026.

Journal entries:

June 20, 2026

Retained Earnings 1,500,000

Cash dividends payable (50,000 shares x P30)
1,500,000

July 27, 2026

No entry

September 01, 2026

Cash dividends payable 1,500,000

Cash 1,500,000

SCRIP DIVIDENDS
NINETY-ONE Corporation has 100,000 shares of P50 par value of ordinary share
capital outstanding as of November 01, 2025. On this date, the Board of Directors
declared a deferred cash dividend of P20 per share to shareholders of record of
November 30, 2025, promissory notes dated December 01, 2025 were issued on the
same date the notes mature within six months plus interest of 12% per annum. The
corporation paid its shareholders on March 01, 2026.

November 01, 2025

Retained Earnings (100,000 shares x P20) 2,000,000

Scrip dividends payable
2,000,000

December 31, 2025

Interest Expense (2,000,000 x 12% x 1/12) 20,000

Interest Payable
20,000

January 01, 2026

Interest Payable 20,000

Interest Expense (2,000,000 x 12% x 1/12)
20,000

March 01, 2026

Scrip dividends payable 2,000,000

Interest Expense (2,000,000 x 12% x 3/12) 60,000
Cash 2,060,000

PROPERTY DIVIDENDS

An entity shall measure a liability to distribute noncash asset as a dividend to its

owners at the fair value of the assets to be distributed. At the end of each reporting
period and at the date of settlement, the entity shall review and adjust the carrying
amount of the dividend payable with any change recognized in equity as adjustment
to the amount of distribution.

Simply stated, the dividend payable is initially recognized at the fair value of the
noncash asset on date of declaration and is increased or decreased as a result of the
change in fair value of the asset at year-end and date of settlement.
When the entity settles the dividend payable, the difference between the carrying
amount of the dividend payable and the carrying amount of the asset distributed shall
be recognized in profit or loss.

Illustration 1:

FORTY-SEVEN Corporation owned 50,000 shares of another entity accounted for

under the cost method. The carrying amount of the investment is P1,200,000. On
December 01, 2026, the entity declared these shares as property dividend to be
distributed on January 31, 2027.

The investment had the following fair values:

December 01, 2026 1,600,000

December 31, 2026 1,300,000
January 31, 2027 1,800,000

Journal entries:
December 01, 2026
Retained Earnings 1,600,000
Property dividends payable 1,600,000
December 31, 2026
Property dividends payable 300,000
Retained Earnings (1,600,000 – 1,300,000) 300,000
January 31, 2027
Retained Earnings (1,800,000 – 1,300,000) 500,000
Property dividends payable 500,000

Property Dividends payable 1,800,000

Investment in equity securities 1,200,000
Gain on distribution of property dividends 600,000

Illustration 2:

On December 01, 2026, FORTY-SEVEN Corporation declared equipment with

carrying amount of P800,000 as property dividend to be distributed on January 31,
2027.
The equipment had the following fair value on the following dates:

December 01, 2026 900,000

December 31, 2026 700,000
January 31, 2027 600,000

December 01, 2026

Retained Earnings 900,000
Property Dividends Payable 900,000

December 31, 2026

1. Changes in liability

Property Dividends payable (900,000 – 700,000) 200,000

Retained Earnings 200,000

2. to recognize impairment loss

Impairment loss (700,000 – 800,000) 100,000

Equipment 100,000

January 31, 2027

Property dividends payable (700,000 – 600,000) 100,000
Retained Earnings 100,000

Property Dividends Payable 600,000

Loss on distribution of property dividends 100,000
Equipment (800,000 – 100,000) 700,000

SHARE DIVIDENDS

A share dividend is a distribution to shareholders in the form of corporation’s own

share capital. This type of dividend does not affect total assets and total
shareholders’ equity, rather, it simply represents a transfer of capital from retained
earnings to contributed capital. Total shareholders’ equity before and after the
declaration and distribution of share capital dividends are the SAME.

a. If the share dividend is less than 20%, the amount charged to retained earnings
is equal to the fair market value on the date of declaration – small share
dividend
 b. If the share dividend is 20% or more, the amount charged to retained earnings
is equal to the par or stated value – large share dividend

Illustration:

ABC Company provided you the following information:

Share capital, P50 par, 200,000 shares authorized, 20,000 shares

issued and outstanding 1,000,000
Share premium 600,000
Retained Earnings 1,300,000
Market Value per share 80

Prepare journal entries assuming that the entity declared:

1. 10% share dividend (small share dividend) – market value

Declaration date
Retained Earnings (10% x 20,000 shares x P80) 160,000
Share dividend payable (10% x 20,000 sh x P50 par)
100,000
Share premium 60,000

Payment / distribution date

Share dividend payable (10% x 20,000 sh x P50 par) 100,000
Share Capital (10% x 20,000 sh x P50 par)
100,000

2. 20% share dividend (large share dividend) – par or stated value

Declaration date
Retained Earnings (20% x 20,000 shares x P50) 200,000
Share dividend payable (20% x 20,000 sh x P50 par)
200,000

Payment / distribution date

Share dividend payable (20% x 20,000 sh x P50 par) 200,000
Share capital (20% x 20,000 sh x P50 par)
200,000

DIVIDENDS ON PREFERENCE SHARES

Preference shares may be:
1. Cumulative – preference shareholders are entitled to the payment of past years’
unpaid dividends or dividends in arrears before the payment of current year’s
dividends

2. Noncumulative - preference shareholders are NOT entitled to the payment of

past years’ unpaid dividends or dividends in arrears; they are entitled to current
year’s dividends ONLY.

3. Participating - preference shareholders are entitled to the additional dividends

after the payment of regular dividends to BOTH the preference and ordinary
shareholders. If the preference shareholders are fully participating, then the
excess dividend is allocated proportionately to the two classes of share capital
based on their total par value.

However, if the preference shares are participating up to a certain percentage

only, a comparison should be made between the maximum allowed participation
and the amount based on full participation. The amount given to the preference
is the lower of the two amounts.

4. Nonparticipating – preference shareholders are not entitled to any dividends in

excess of regular rate. The entire dividend balance after the preference
shareholders got their regular dividend rate is given to the ordinary
shareholders.

DEF Company declared and paid cash dividends for the last three years as follows:
2024 – P120,000; 2025 – P200,000; 2026 – P300,000. No dividends were paid for two
years prior to 2024. The capital structure for the last three years follows:

10% preference share capital, P100 par, 5,000 shares outstanding P500,000
Ordinary share capital, P50 par, 5,000 shares outstanding 250,000

Case 1 – The preference shares are noncumulative and nonparticipating

2024 2025
2026
Preference shares (500,000 x 10%) 50,000 50,000 50,000
Balance – to ordinary 70,000 150,000 250,000
Total dividends 120,000 200,000 300,000

Dividend per share

Preference 10 10 10
Ordinary 14 30 50

Case 2 – The preference shares are cumulative and nonparticipating

Dividend in arrears = 500,000 x 10% x 2 years = 100,000

2024 Preference Ordinary

Total
Dividend in arrears 100,000 100,000
Current Dividends
Required 50,000
Available (120,000 – 100,000) 20,000 20,000
20,000
In arrears, end of 2024 30,000
1
Total Dividends 120,000 0 120,000
Number of outstanding shares 5,000
Dividend per share 24

2025 Preference Ordinary

Total
Dividend in arrears 30,000 30,000
Current Dividends 50,000 50,000
Balance to ordinary
(200,000 – 30,000 – 50,000) 120,000
120,0001
Total Dividends 80,000 120,000 200,000
Number of outstanding shares 5,000 5,000
Dividend per share 16 24

2026 Preference Ordinary

Total
Current Dividends 50,000 50,000
Balance to ordinary
(300,000 – 50,000) 250,000 250,0001
Total Dividends 50,000 250,000 300,000
Number of outstanding shares 5,000 5,000
Dividend per share 10 50

Case 3 – The preference shares are noncumulative but fully participating

2024 Preference Ordinary

Total
Regular Dividends
Preference 50,000
50,000
Ordinary – 250,000 x 10% 25,000 25,000
Balance (120,000 – 50,000 – 25,000) = 45,000
 Preference 500,000 (500/750) x 45,000 30,000
30,000
Ordinary 250,000 (250/750) x 45,000 15,000
15,000
750,000 1 1
Total Dividends 80,000 40,000 120,000
Number of outstanding shares 5,000 5,000
Dividend per share 16 8

2025 Preference Ordinary

Total
Regular Dividends
Preference 50,000
50,000
Ordinary – 250,000 x 10% 25,000 25,000
Balance (200,000 – 50,000 – 25,000) = 125,000
Preference 500,000 (500/750) x 125,000 83,333
83,333
Ordinary 250,000 (250/750) x 125,000 41,667
41,667
750,000 1 1
Total Dividends 133,333 66,667 200,000
Number of outstanding shares 5,000 5,000
Dividend per share 26.67 13.33

2026 Preference Ordinary

Total
Regular Dividends
Preference 50,000
50,000
Ordinary – 250,000 x 10% 25,000 25,000
Balance (300,000 – 50,000 – 25,000) = 225,000
Preference 500,000 (500/750) x 225,000 150,000
150,000
Ordinary 250,000 (250/750) x 225,000 75,000
75,000
750,000 1 1
Total Dividends 200,000 100,000 300,000
Number of outstanding shares 5,000 5,000
Dividend per share 40 20

Case 4 – The preference shares are cumulative and fully participating

Dividend in arrears = 500,000 x 10% x 2 years = 100,000

2024 Preference Ordinary
Total
Dividend in arrears 100,000 100,000
Current Dividends
Required 50,000
Available (120,000 – 100,000) 20,000 20,000
20,000
In arrears, end of 2024 30,000
1
Total Dividends 120,000 0 120,000
Number of outstanding shares 5,000
Dividend per share 24

2025 Preference Ordinary

Total
Dividend in arrears 30,000 30,000
Regular Dividends
Preference 50,000
50,000
Ordinary – 250,000 x 10% 25,000 25,000
Balance (200,000–30,000–50,000–25,000) = 95,000
Preference 500,000 (500/750) x 95,000 63,333
63,333
Ordinary 250,000 (250/750) x 95,000 31,667
31,667
750,000 1 1
Total Dividends 143,333 56,667 200,000
Number of outstanding shares 5,000 5,000
Dividend per share 28.67 11.33

2026 Preference Ordinary

Total
Regular Dividends
Preference 50,000
50,000
Ordinary – 250,000 x 10% 25,000 25,000
Balance (300,000-50,000–25,000) = 225,000
Preference 500,000 (500/750) x 225,000 150,000
150,000
Ordinary 250,000 (250/750) x 225,000 75,000
75,000
750,000 1 1
Total Dividends 200,000 100,000 300,000
Number of outstanding shares 5,000 5,000
Dividend per share 40 20

Case 5 – the preference shares are noncumulative but participating up to an

additional 8%. This means that the maximum participation of preference shares on
the excess dividends is 40,000 (500,000 x 8%)

2024 Preference Ordinary

Total
Regular Dividends
Preference 50,000
50,000
Ordinary – 250,000 x 10% 25,000 25,000
Balance (120,000-50,000–25,000) = 45,000
Preference 500,000 (500/750) x 45,000 30,000*
30,000
Ordinary 250,000 (250/750) x 45,000 15,000
15,000
750,000 1 1
Total Dividends 80,000 40,000 120,000
Number of outstanding shares 5,000 5,000
Dividend per share 16 8
*lower between P30,000 and maximum dividend of P40,000

2025 Preference Ordinary

Total
Regular Dividends
Preference 50,000
50,000
Ordinary – 250,000 x 10% 25,000 25,000
Balance (200,000-50,000–25,000) = 125,000
Preference 500,000 (500/750) x 125,000 = 83,333 40,000*
40,000
Ordinary (125,000 – 40,000) 85,000
85,000
1 1
Total Dividends 90,000 110,000 200,000
Number of outstanding shares 5,000 5,000
Dividend per share 18 22
*lower between P83,333 and maximum dividend of P40,000
2026 Preference Ordinary
Total
Regular Dividends
Preference 50,000
50,000
Ordinary – 250,000 x 10% 25,000 25,000
Balance (300,000-50,000–25,000) = 225,000
Preference 500,000 (500/750) x 225,000 = 150,000 40,000*
40,000
Ordinary (225,000 – 40,000) 185,000
185,000
1 1
Total Dividends 90,000 210,000 300,000
Number of outstanding shares 5,000 5,000
Dividend per share 18 42
*lower between P150,000 and maximum dividend of P40,000

Preference Ordinary
Arrea Curre Balan Arrea Curre Balan
rs nt ce rs nt ce
Noncumulative, x / x x x /
nonparticipating
Cumulative, nonparticipating / / x x x /
Noncumulative, participating x / / x / /
Cumulative, participating / / / x / /