UK Dividends paid recognition

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I'm seeking advice on accounting for dividends paid in small companies.

I was always under the impression that dividends should only be recognised once they had been cash settled, rather than creating a dividend payable liability in the interim.

Under what circumstances, if any, is it acceptable to have a dividend payable liability at the year end please?

For context, a new client has asked for my advice on whether he can make a prior period adjustment to his 2016 accounts (Dr Distributable reserves Cr Dividend liability/Director loan). The cash was withdrawn during the 2017 accounting year (accounts not yet filed).

Thanks in advance
 

Fidget

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It depends (as is oft) on the circumstances. If it's a dividend that is proposed but not guaranteed at the year end then it shouldn't be accrued for. If it has been guaranteed to be be paid, but not yet paid by the year end, then a liability exists at the year end, so it would be accrued for in that situation.
 
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Thanks Fidget,

My client is saying it was guaranteed but simply omitted from the accounts in error.

In which case, do you think it would still be acceptable, 16 months after the year end, to make a prior year adjustment to those accounts in respect of these dividends?
 

Fidget

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Generally, dividends can only be paid out when distributable profits are available to cover them. So I'd be questioning the motives as to why this omission of 16 mths ago is only being brought to light now and perhaps moreso, why looking for a prior year restatement because of it.
 

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