Distributions to owners

Distributions to owners – Future economic benefits or service potential distributed by the entity to all or some of its owners, either as a return on investment or as a return of investment.

There are two major types of distributions to owners/shareholders:

  • Distributions of profits to holders of equity instruments in proportion to their holdings of a particular class of capital. A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. A dividend is allocated as a fixed amount per share with shareholders receiving a dividend in proportion to their shareholding. See also Wikipedia Dividend payment. Distributions to owners
  • Dividend payment in the form of a transfer of (net assets to the shareholders. This is handled in IFRC 17 Distributions of non-cash assets to owners.

Both dividend payment decision need to go through a formal process of validation (is the entity not paying out too much, jeopardising its LT financing by debt-holders and shareholders), proposal and approval by management and shareholders. Here we are discussing the distributions of Non-current assets to owners.

Recognition of dividend payable

The liability to pay a dividend shall be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity, which is the date:

  1. when declaration of the dividend, eg by management or the board of directors, is approved by the relevant authority, eg the shareholders, if the jurisdiction requires such approval, or
  2. when the dividend is declared, eg by management or the board of directors, if the jurisdiction does not require further approval (by shareholders). Distributions to owners

Measurement of a dividend payable

An entity shall measure a liability to distribute non-cash assets as a dividend to its owners at the fair value of the assets to be distributed. If an entity gives its owners a choice of receiving either a non-cash asset or a cash alternative, the entity shall estimate the dividend payable by considering both the fair value of each alternative and the associated probability of owners selecting each alternative. At the end of each reporting period and at the date of settlement, the entity shall review and adjust the carrying amount of the dividend payable, with any changes in the carrying amount of the dividend payable recognised in equity as adjustments to the amount of the distribution. Distributions to owners

When an entity settles the dividend payable, it shall recognise the difference, if any, between the carrying amount of the assets distributed and the carrying amount of the dividend payable in profit or loss. Distributions to owners

Here are two examples from IFRIC 17 IE Distributions to owners


Listed company distribution of part of available-for-sale securities 

Distributions to owners Distributions to owners

Assume Company A is owned by public shareholders. No single shareholder controls Company A and no group of shareholders is bound by a contractual agreement to act together to control Company A jointly. Company A distributes certain assets (eg available for-sale securities) pro rata to the shareholders. This transaction is within the scope of the Interpretation.

However, if one of the shareholders (or a group bound by a contractual agreement to act together) controls Company A both before and after the transaction, the entire transaction (including the distributions to the non-controlling shareholders) is not within the scope of the Interpretation. This is because in a pro rata distribution to all owners of the same class of equity instruments, the controlling shareholder (or group of shareholders) will continue to control the non-cash assets after the distribution.


Listed company distribution of shares of subsidiaries

Distributions to owners Distributions to owners

Assume Company A is owned by public shareholders. No single shareholder controls Company A and no group of shareholders is bound by a contractual agreement to act together to control Company A jointly. Company A owns all of the shares of Subsidiary B. Company A distributes all of the shares of Subsidiary B pro rata to its shareholders, thereby losing control of Subsidiary B. This transaction is within the scope of the Interpretation.

However, if Company A distributes to its shareholders shares of Subsidiary B representing only a non-controlling interest in Subsidiary B and retains control of Subsidiary B, the transaction is not within the scope of the Interpretation. Company A accounts for the distribution in accordance with IFRS 10 Consolidated Financial Statements. Company A controls Company B both before and after the transaction.

Distributions to owners

Distributions to owners

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