Under UK GAAP, how are dividends declared after the year-end treated?

Dividends declared after the year-end are recognized in the financial statements in a specific manner under UK GAAP. When dividends are declared after the reporting period, they do not create a liability at the balance sheet date since the obligation to pay the dividend arises only upon declaration. Therefore, while they are a commitment and should be disclosed, they are not recorded as a liability on the balance sheet.

Instead, dividends declared post-year-end are treated as a segregated component of retained earnings in the financial statements. This treatment reflects that while the entity has committed to distribute part of its profits, the distribution has not been recognized as a liability until the formal declaration is made. Thus, these amounts are typically shown in the notes to the financial statements, indicating that they will reduce retained earnings in the subsequent period when paid out.

This approach ensures clarity for users of the financial statements regarding the company’s retained earnings and future cash flows while complying with the reporting standards set by UK GAAP.