Ind AS Treatment of Dividends Declared Before and After Reporting Date

1. Question

Orion Textiles Private Limited (hereinafter referred to as “the company”), an Indian company engaged in textile manufacturing, follows the Indian Accounting Standards (Ind AS) for the preparation of its financial statements. The company has had a profitable financial year ending 31 March 2025, recording a net profit of Rs. 10 crore and retaining earnings of Rs. 18 crore as of the balance sheet date. The company has 1 crore equity shares outstanding, fully paid at Rs.10 each. The Board of Directors decided to reward shareholders through dividend distribution. On 20th December 2025, during the financial year, the Board declared an interim dividend of Rs.1 per share, amounting to Rs.1 crore, and due payment on 20th April 2025, after the reporting date but before the financial statements were approved for issue.

Further Board proposed a final dividend of Rs. 2 per share, totalling Rs. 2 crore on 5th March 2025. However, this final dividend is subject to shareholder approval at the Annual General Meeting scheduled for 30 June 2025.

State the accounting treatment:

a. What is the appropriate accounting treatment for the interim dividend declared and paid after the reporting date, and the final dividend proposed before the reporting date, in the Company’s financial statements for the year ended 31 March 2025?

b. How would the accounting treatment differ if the Board had proposed the final dividend after the reporting date, with shareholder approval obtained subsequently?

2. Relevant Provision

Ind AS 10 – Events after the reporting date

Para 3 – Events after the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are approved by the Board of Directors in case of a company, and, by the corresponding approving authority in case of any other entity for issue. Two types of events can be identified:

a. those that provide evidence of conditions that existed at the end of the reporting period (adjusting events after the reporting period); and

b. Those that are indicative of conditions that arose after the reporting period (non-adjusting events after the reporting period).

Para 8 – An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events after the reporting period.

Para 10 – An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the reporting period.

Para 12 – If an entity declares dividends to holders of equity instruments (as defined in Ind AS 32, Financial Instruments – Presentation) after the reporting period, the entity shall not recognise those dividends as a liability at the end of the reporting period.

Ind AS 32 – Financial Instruments –Presentation

Para AG37 – Any dividends paid relate to the equity component and, accordingly, are recognised as a distribution of profit or loss.

The interim dividend is usually paid in the middle of the year if the Board of Directors finds that the profitability of the company is good and is likely to be maintained for the balance part of the year, or there is an adequate surplus profit and loss account.As per the provisions of Section 123(3) of the Companies Act, 2013, the Board of Directors is empowered to declare an interim dividend at any time during the financial year. This dividend can be declared out of the surplus available in the Profit and Loss Account or from the profits of the financial year in which the interim dividend is proposed.

3. Analysis

In accordance with the provisions of Ind AS 10,the company must evaluate post-balance sheet events based on whether they are adjusting or non-adjusting in nature. As per Paragraph 3 of Ind AS 10, events occurring after the reporting period but before the approval of financial statements must be assessed to determine if they provide evidence of conditions that existed as on the balance sheet data (adjusting events) or reflect new conditions arising after that date (non-adjusting events). According to Paragraph 8, only adjusting events warrant modifications to the financial statements, whereas Paragraph 10 prohibits adjustments for non-adjusting events. Further, Paragraph 12 of Ind AS 10 specifically clarifies that dividends declared after the reporting date are non-adjusting events and should not be recognised as liabilities.

In the given case, the interim dividend of Rs.1 crore was declared on 20 December 2024, prior to the reporting date of 31 March 2025, though it was paid subsequently on 20 April 2025.

As per Section 123(3) of the Companies Act, 2013, the Board of Directors is authorised to declare an interim dividend at any time during the financial year, out of current or accumulated profits. Since the declaration occurred before the end of the reporting period, the company had a present obligation as of the balance sheet date, making it an adjusting event in accordance with Ind AS 10 (Para 8). Furthermore, as per Ind AS 32 (Para AG37), the declared dividend should be recognised as a liability. Accordingly, the interim dividend must be accounted for in the financial statements for the financial year 2024–25.

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