Are dividends in arrears a liability?

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McKinney 0 Comments

How should a company account for dividends in arrears? Is it a liability and what kind of liability (current or non current)? Would you say that its the same for ordinary and preference shares?

1 Answer

score 0 · Answer 1 · 2012-12-02T21:32:41+00:00

Dividends in arrears refer to the accumulation of the dividends that the preference share class has. The preference shares accumulate dividends even when no dividends are declared. In this case, the accumulation will be disclosed in the notes. If the dividends are declared, the accumulation of these unpaid dividends is recognized as a current liability.

In addition, if a company declares dividends but not paid yet (even for ordinary dividends), it will need to create a current liability (dividends payable).