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CH - 18 - Dividend Policy
CH - 18 - Dividend Policy
CH - 18 - Dividend Policy
DIVIDEND POLICY
R 18
LEARNING OBJECTIVES
2
Cash Dividends
Prepare cash budget in advance if stable div. policy is
followed. Total assets and networth are reduced and market
price of share drops.
To shareholders:
Tax benefit
Indication of higher future profits
Future dividends may increase
Psychological value
To company:
Conservation of cash
Only means to pay dividend under financial difficulty
and contractual restrictions
More attractive share price
Limitations of Bonus Shares
13
The bonus issue and the share split are similar except
for the difference in their accounting treatment.
In the case of bonus shares, the balance of the
reserves and surpluses account decreases due to a
transfer to the paid-up capital and the share premium
accounts. The par value per share remains unaffected.
With a share split, the balance of the equity accounts
does not change, but the par value per share changes.
Reasons for Share Split
18