ACCOUNTING FOR DIVIDEND AND DIVIDEND DISTRIBUTION TAX



ACCOUNTING FOR DIVIDEND


Dividend is share of profit after tax given to shareholders (owners) of the company, it is appropriation of profit after tax not an expense . It is clearly explained in the below table:

Particular
Amount
Net Profit
1000000
Less:- Income Tax
 300000
Net profit after tax
 700000
Appropriation:-
Dividend
Amount transferred to general Reserve

 100000

600000

  Journal for dividend

SL.NO
PARTICULAR
DEBIT
CREDIT
1
Dividend A/c      Dr
         To Shareholders  A/c
100000

100000

 Rules for passing journal entry

 Debit
 Dividend is appropriation from profit and the same is paid to shareholders as  there is outflow of funds and it is deemed to be expense and the same is  debited

 Credit
 Shareholders are the receiver of dividend and they are deemed to be creditor

Computation of dividend distribution tax

DDT




 Journal for  Dividend Distribution Tax (DDT)

SL.NO
PARTICULAR
DEBIT
CREDIT
1
DDT A/c      Dr
         To DDT payable  A/c
20357.46

20357.46

 Rules for passing journal entry

Debit
Dividend distribution tax is expense so it is debited

Credit
DDT is payable to government and the account is credited to DDT payable

Journal for transfer of dividend and DDT to profit and loss appropriation account

SL.NO
PARTICULAR
DEBIT
CREDIT
1
Profit and loss  A/c      Dr
         To dividend  A/c
         To DDT A/c    
120357.64

100000
20357.64

 Rules for passing journal entry

Debit
Since dividend is appropriated from profit and loss, the account has to be debited as there is decrease in the account

Credit
Dividend account is closed by transfer to profit and loss account by crediting the account,DDT is transferred to profit loss account by crediting

Journal for payment of dividend and DDT

SL.NO
PARTICULAR
DEBIT
CREDIT
1
Shareholders  A/c      Dr
DDT payable A/C       Dr
         To Bank A/c
100000
20357.64


120357.64

 Rules for passing journal entry

Debit
Share holder account is closed by debiting their account, because they are paid.
DDT payable account is closed by debiting the account, because they are paid.

Credit

Since there is outflow of money which is an asset the bank is credited.

Comments

Popular posts from this blog

AMALGAMATION :- JOURNAL ENTRIES IN THE BOOKS OF TRANSFEROR AND TRANSFEREE COMPANY

SOLVE AMALGAMATION PROBLEM IN 7 STEPS

PREPARE CONSOLIDATED BALANCE SHEET IN 9 STEPS