Final Accounts and Its Adjustments: Dividend Adjustments

Arjun EP

Published on: September 23, 2020

Adjustment Entry in Final Accounts

Adjustment entry means not adjusted while preparing trial balance.

It is also known additional information.

Almost all the adjustment entry effects dual aspect.

One is debit and other is credit.

There are a number of adjustments to be made while finalizing the financial statements.

But our discussion will be limited to the following adjustments (limited by the curriculum):

MAJOR ADJUSTMENTS IN FINAL ACCOUNTS:

1	Dividend	13	Bad debts, provision and discount
2	Transfer to reserve and fund	14	Recovery of bad debts
3	Adjustment of tax	15	Goods loss by fire and insurance claim
4	Closing stock	16	Goods distribute as free sample
5	Outstanding expenses	17	Manager’s commission
6	Prepaid expenses	18	Bonus or pension to employees
7	Accrued revenue or income	19	Create reserve or fund
8	Unearned or prepaid revenue	20	Goods sold on sale or return basis
9	Depreciation on assets	21	Hidden adjustment:
10	Appreciation on assets		(a) Interest on loan or debenture
11	Written off or amortized		(b) Interest on investment
12	Purchase or sale of fixed assets		(c) Monthly rent and salary

Adjustment of Dividend in Final Accounts

Dividend is the certain portion of net profit.

It is distributed among shareholders as the shares of profit.

The dividend amount depends upon profit position of the company.

Dividend decision is taken by the board of directors.

Proposal is presented in annual general meeting of shareholders for final approval.

Dividend paid to shareholders cannot be considered as expenses.

Therefore, it is adjusted in profit and loss appropriation account and balance sheet.

(A) INTERIM DIVIDEND

Generally, interim dividend is declared middle of fiscal year (end of six months of a fiscal year).

Such dividend is paid to the shareholders when management of company found better profit position of the company.

If interim dividend is not paid, it appears in debit side of trial balance.

It is shown in debit side of profit and loss appropriation account.

ADJUSTMENT: 1A

Following extracted information is given to you:

Extracted Trial Balance

Particulars	Debit	Credit
Interim dividend	95,000

Required: Show in in related account

SOLUTION:

Profit and Loss Appropriation (Retained Earning) Account

Particulars	Amount	Particulars	Amount
To Interim dividend	95,000

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(B) PROPOSED DIVIDEND

Proposed dividend is approved in the annual general meeting by the board of directors (BOD).

Proposed dividend will be paid to the shareholders after approval in annual general meeting.

Therefore, it is not appeared in trial balance.

It is given in additional information.

It is recorded in debit side of profit and loss appropriation account and liabilities side of balance sheet.

ADJUSTMENT: 1B

Trial Balance

Particulars	Debit	Credit
Interim dividend	25,000
Equity shares capital (8,500 share @ Rs 100)		850,000
Calls in arrear	50,000

Additional information:

Board of directors (BOD) proposed and declared dividend @ 10%.

Required: Effect in final account

SOLUTION:

Profit and Loss Appropriation (Retained Earning) Account

Particulars	Amount	Particulars	Amount
To Interim dividend	25,000
To Proposed dividend on equity shares	80,000
(800,000 @ 10%)*

Extracted Balance Sheet

Liabilities		Amount	Assets	Amount
Issued capital:
8,500 equity shares @ Rs 100	850,000
Less: Calls in arrear	−50,000	800,000
Provisions:
Proposed dividend on equity shares		80,000