In connection with the accounting changes of 2016, the rules relating to the prescribing and the accounting of dividend are first applicable in the current reporting period. The purpose of the change was to align the Hungarian Act on Accounting with international accounting regulations and to simplify the administration of financial statement acceptance (without the preparation of two separate balance sheets, one before dividend payment and one including dividend, being necessary).
When can dividend be paid?
According to the new regulation, the free profit reserve supplemented by the after-tax profit of the previous business year can be paid as dividend if the amount of shareholders’ equity reduced by the positive revaluation reserve does not reduce below the amount of registered capital including the dividend either.
When determining the amount of free profit reserve and shareholders’ equity, the amount of the dividend, profit sharing received (due) not yet included in the financial statements of the previous business year but accounted for in the current year until the date of preparation of the balance sheet can be considered as an increasing item. Attention must, however, be paid to the fact that negative profit reserve reduces the possibility of dividend payment.
The change from the previous wording is the inclusion of the word positive before the revaluation reserve and the possibility of the increase by the amount of the dividend received (due) accounted for until the date of preparation of the balance sheet in the regulation of determining of the free profit reserve and shareholders’ equity. The latter amendment was necessary so that the amendment relating to the accounting of dividend does not have an effect on the amount of dividend payable.
Accounting of dividend payable in the financial statements of 2016
According to the provisions of the Act on Accounting applicable for the 2015 business year, the dividend received (due) for the current year until the date of preparation of the balance sheet must be accounted for as revenue in the financial statements of the current year and the amount of dividend payable must be included in the financial statement of the business year in relation to which it was approved.
From the 2016 business year, this changes with the amount of the established and payable dividend to be accounted for in the accounting records as of the date of the relevant decision for the business year following the current year.
Accounting of the dividend payable to the owners shall take place based on the owner decision approving the financial statements and as of the date of such decision as an item decreasing the profit reserve and increasing liabilities.
The above described recognition of dividend raises the question of how the dividend liability of the previous period should be presented in the current year, 2016 financial statements: according to the rules of 2015 or already based on the rules of 2016?
The legislator eliminated this uncertainty with a temporary provision of 2016, which made it clear that the financial statements prepared of the business year starting in 2016 shall present as data of the previous business year the data as of the balance sheet date of the financial statements of the previous business year in the breakdown of the balance sheet and profit and loss account statement applicable from 1 January 2016. In practice this means that the data of the financial statements before the dividend decision of 2015 shall also be presented under the data of the previous year.
As the financial statements will differ from the data reported in the financial statements of 2015, this will have to be addressed in the supplementary notes explaining the composition of shareholders’ equity.
The new rules of dividend accounting also come with new practical tasks with which many are only faced now at the time of preparation of the financial statements.