Dividends Workout
- 01:37
Dividends Workout
Transcript
Okay, so we know that the company wishes to return 5 million to shareholders, and in this instance it's via a cash dividend. We're asked to look at how this will impact the balance sheet and what the equity line item balances will be after the transaction, given the information. Well, if we have a look further down, we have given to us the excerpt from the balance sheet, the equity section. We've got some share capital and share premium. We've got treasury stock, negative number of course, and some retained earnings. It looks like that total is 11.8. You know, quick, uh, appraisal of that, the total equity is gonna go down by 5 million and because it's a dividend, it's gonna be charged to retained earnings. But let's take a detailed look at that. If we scroll a bit further down, we've got a bit of space here for the accounting equation. So I think the first thing we wanna think about is if we're paying a cash dividend, cash is gonna go down and that's absolutely known. Cash, of course, is an asset. And to balance the equation off, then equity's going to go down also by 5 million. Notice that this is specifically charged to retained earnings. Well, what about the balances for the equity section of the balance sheet? After the transaction, well share capital's gonna be the same. Share premiums gonna be the same, and treasury stock is gonna be the same, but retained earnings, if you look at the formula there, uh, has five subtracted from it. And of course the total equity for the business is gonna be lower by five or so.