What should be the treatment of the following in the Cash Flow Statement:-
The Company will pay free of tax dividend of 10%, the rate of tax being 25%.
(Net Profit after depreciation is 1,04,500)
3 Replies
(Guest)
We are given NET PROFIT AFTER DEPRECIATION (this is net profit above the line, i.e. without any appropriations). Hence, the information regarding the dividend payable or the propsed dividend is irrelevant. In your case, you will show the dividend under FINANCING ACTIVITIES only when it is ACTUALLY PAID.
If you were given opening balance of profit & loss a/c and closing balance of profit & loss a/c, then there was a requirement to reduce the proposed dividend as it is an appropriation. This treatment is followed in Indirect Method.
Deepak Gupta
(CA Student)
(15922 Points)
Replied 22 February 2013
| Originally posted by : NISHA AGARWAL | ||
 |
What should be the treatment of the following in the Cash Flow Statement:- The Company will pay free of tax dividend of 10%, the rate of tax being 25%. (Net Profit after depreciation is 1,04,500) |
 |
Payment of Dividend:
10% on Capital of Rs. 3000 (Say) = Rs. 300
.
As the company has decided to pay tax free dividend to its shareholders, it has to bear the amount of tax payable by its shareholders on receipt of such dividend. Hence, the total amount to be paid for such dividend is, Gross up Amount = (Rs.300/75)*100 = Rs. 400
.
Outflow of Cash (Financing Activities):
Payment of Dividend = Rs. 300
Tax Paid = Rs. 100
Similar question came in PE-II May 2008. Refer to Q. 6(b) on Page 21 for ICAI suggested answer
NISHA AGARWAL
(Chartered Accountant)
(454 Points)
Replied 22 February 2013
Will there be any treatment of the dividend and the tax paid thereof in calculation of Operating Profit?
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