Can you please help me with the dividends queries below?
Dividends are paid to Directors out of the holding company.
At year end 31/03/2018 no dividend was voted even though the Group was overall profitable.
Holding Company – Negative Reserves of £250,000
Sub A – Positive Reserve of £650,000
Directors now want to get paid £100,000 in dividends in 4 instalments of £25K.
The relevant accounts for the holding company at 31/03/18 show that there are no distributable reserves as those are negative.
We want to use the current interim accounts to distribute a dividend out of Sub A to the Holding co of £400,000 which will bring the holding reserves to the level where we can actually distribute dividends.
1) Assuming no changes to the amounts above (in the current year) can you please help me with the double entry for: a) IC transactions and b) the actual dividend payments.
Sub A Interim Accounts:
Dr Reserves (BS) 400K
Cr Intercompany (BS) 400K
Dr Intercompany (BS) 400K
Cr Dividends (PL) 400K
Dividend Payments (4 instalments)
Dr Reserves (BS) 25,000
Cr Bank (BS) 25,000
2) Now what happens to dividends if the company start making a loss in the current year which wipes out last year’s profit? The company is still profitable so not an issue but considering that lots can change until 31/03/2019 what happens then?