Dividend Payment-IAS7

[veditahjps]

Hi,

Can anyone clarify whether Dividend payment goes under the heading of Financing activities or under that of Investing activities.

I personally believe that it should goes under the heading of investing activities as dividend payment is a way of servicing finance.

[Sonal]

These may be classified as:

Either
as financing activities because they are a cost of obtaining financial resources. (Dividends need to be paid to shareholders. Otherwise shareholders will not keep their shares. It is their return on investment).

Or,
as a component of cash flows from operating activities, so that the users can assess whether the entity is able to pay dividends out of operating cash flows.

The IAS allows the entities flexibility to decide how to classify interest and dividends, depending upon circumstances and the judgement of the management

[Deepak82]

Classification of dividends paid: These may be classified

a) Either as financing activities because they are a cost of obtaining financial resources. (Dividends need to be paid to shareholders. Otherwise shareholders will not keep their shares. It is their return on investment).

b) Or, as a component of cash flows from operating activities, so that the users can assess whether the entity is able to pay dividends out of operating cash flows.

The IAS allows the entities flexibility to decide how to classify interest and dividends, depending upon circumstances and the judgement of the management.

There should be consistency in classifying and disclosing once a particular head is chosen.

Note :dividend can never be classified under investing activity.

Hope this helps you! In case of further doubts let me know.

Andrew