RETAINED EARNINGS 2.0

Retained Earnings

Cumulative net profits which are retained in the business and not yet distributed to the shareholders.

Deficit

A debit balance in the Retained Earnings account resulting from accumulated losses.

Unrestricted Retained Earnings

Retained earnings that are free and can be declared as dividends.

Appropriations

Restrictions on retained earnings (legal, contractual, or voluntary) indicating amounts not available for distribution; does not mean actual cash is set aside.

Shares Not Entitled to Dividends

Unissued shares, subscribed no-par shares, and treasury shares.

Legal Capital

The portion of shareholders’ investment that must remain in the company to protect creditors and cannot be declared as dividends.

Date of Declaration

The date the board of directors adopts a resolution to declare a dividend, officially creating a legal liability.

Date of Record

The date a list of entitled shareholders is prepared; no journal entry is required.

Date of Payment

The date the corporation settles its dividend liability and makes the accounting entry to credit cash, property, or share capital.

Small Share Dividend

A share dividend of less than 20% of outstanding shares, requiring Retained Earnings to be debited at Fair Market Value.

Large Share Dividend

A share dividend of 20% or more of outstanding shares, requiring Retained Earnings to be debited at Par Value.

Property Dividend (Liability Measurement)

Initially measured at the fair value of the non-cash asset being distributed.

Asset Held for Distribution

The classification for a non-cash asset declared as a property dividend, measured at the lower of carrying amount and fair value less costs to distribute.

Cumulative Preference Shares

Preference shares entitled to current dividends plus any arrears (back dividends) before ordinary shareholders receive payouts.

Default Preference Share Assumption

In the absence of a specific agreement, preference shares are legally assumed to be non-cumulative and non-participating.

Quasi-Reorganization

A fresh-start accounting procedure for financially distressed companies to eliminate a deficit against share premium, resetting retained earnings to zero.

Scrip Dividend

A promissory note issued when a company has adequate retained earnings but insufficient cash; requires any accrued waiting period interest to be recorded as interest expense.

Liquidating Dividends

A return of contributed capital rather than earnings, which reduces paid-in capital instead of retained earnings.

Fractional Share Warrants

Certificates issued for partial shares resulting from a share dividend, which can be combined or paid out in cash equal to the market value of the fractional share.