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Treatment Of Interim Dividend

Published in: Accountancy
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Treatment of Interim Dividend

  • 1
    Treatment of Interim Dividend An Interim Dividend is that dividend which is declared between two Annual General Meetings (AGMs). Add back to current year's profits in order to find out cash from operatxnt activities. Show as Cash used in Financing Activities in the Cash Flow Treatment of Provision for Taxation Item Previous Provision Year's Meaning represents the It amount of tax paid in the current year represents the It of amount tax provided for current year Treatment Reason Subtract the net tax It involves outflow paid (i.e. Previous of Tax year's tax Current Year's Provision provision- Refund of Tax) Add back to the It is merely a book current year's entry book and profits to calculate does not involve an Cash from outflow of cash operating activities. Note: Unless otherwise stated, it presumed that the Provision for Tax appearing in the previous year's Balance Sheet has been paid subsequently during the current year.
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    Provision for Taxation A/c Dr Particulars To Bank A/c (Tax Paid) To Balance c/d xxx xxx xxx Particulars By Balance b/d By Profit & Loss A/c (Provision for the current year) Cr xxx xxx xxx
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    Preparation of Fixed Assets Account 1. Fixed Asset Account (on Original Cost Basis): If the Balance Sheet contains an item of provision for depreciation or accumulated depreciation, it means that the fixed assets are shown in the balance sheet at their original cost. In such cases, fixed assets fixed assets and provision for depreciation account should be prepared. Fixed asset account will disclose the purchase and sale of the fixes asset during the year and by preparing provision for depreciation account the amount of depreciation charged during the year will be found out. 2. Fixed Asset Account (on the Written Down Value Basis): When the Balance sheet does not contain the item of provision for depreciation or accumulated depreciation for both the years, it means that the fixed assets are shown in the Balance sheet at their written down value (after depreciation) and hence the fixed asset account will be prepared on the written down value basis. In this case the amount of current year's depreciation should be credited to the Asset Account. Treatment of Depreciation At the time of calculating profit/loss, depreciation is debited to profit and loss account. It does not involve cash but is a book entry. Therefore, depreciation is to be added back to net profit before tax for calculating cash flow. Treatment of profit or loss on sale of Fixed Assets For calculating net profit/loss, loss on sale of fixed assets is debited to profit and loss account. Similarly, profit on sale of fixes assets is credited to profit and loss account. It does not involve cash. Rather cash is involved on sale of fixed assets. Profit or loss is a result of sale. Therefore, loss on sale of fixed assets is added back and profit on sale of fixed assets is deducted from net profit before tax for arriving at the cash flow from operating activities. Note: Sale proceeds of fixed assets will, of course, result in a cash inflow but this inflow will be shown in the cash flow statement under cash flow from investing activities.
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    Ascertaining Missing Amounts regarding Fixed Assets or Depreciation. CASE 1: When the Fixed Asset is shown at the Written down Value. Under this case, depreciation is charged to the Asset Account and the balance of the Asset Account shows the written down value of the asset, which is also called the book value. Fixed Asset A/c( At Cost) Dr Particulars To Balance b/d To Profit & loss A/c (Profit on sale of Fixed asset) To Bank A/c (Purchase of Fixed Asset) Xxx Xxx xxx Xxx Particulars By Bank A/c (Sale of Fixed Asset) By Accumulated Dep. A/c (Accumulated Dep. On fixed asset sold) By Profit & loss A/c (loss on sale of Fixed Asset) By Balance c/d Cr Xxx xxx xxx xxx Xxx
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    NOTE: Normally, the purchase of fixed asset is a balancing amount on the debit side of the account and the sale of fixed asset on the credit side of the accoun Accumulated Depreciation Account(or Provision for Depreciation Account) Dr Particulars To Fixed Asset A/c (Accumulated Dep. On fixed asset sold) To Balance c/d xxx xxx xxx Particulars By Balance b/d By Profit & loss A/c (Dep. Charged for current year) Cr )(xx xxx xxx NOTE: Accumulated depreciation on the fixed asset sold or depreciation charged for the current accounting year may not be given, which shall be the balancing amount.

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