Are preferred dividends in arrears a current liability?
Do you know if the preferred dividends that are non paid yet are reported as a current or as a non current liability on the statement of financial position for a company?
Preferred dividends accumulate a dividend every year if these dividends are not paid which creates a current liability for a company. It’s a current liability because it is expected to be repaid within the following twelve months. Shareholders that hold preference shares have the right for dividends even when no dividends are declared so the dividends are accumulated year after year when not paid (even when the board has not approved any distribution to be made).
The preferred dividends can be cumulative or non cumulative. The non cumulative preferred stock is less frequent and has the same treatment as ordinary stock or in other words, it’s only recognized when declared. If it’s not declared, the company is not liable to pay any dividend.
In the case of the cumulative preferred stock, the dividends in arrears are disclosed in the notes if they are not declared or they are recognized as a current liability if they are approved by the board of directors.