Explain the accounting treatment of Interim dividend and Final dividend.

Interim dividend:

This dividend is declared between two annual general meetings. As per regulation 86 of Table A, the Board may from time to time pay to shareholders such interim dividend as appear to it to be justified keeping in view the profits of the company. The articles of association may allow for the payment of such a dividend if Table A has not been adopted by a company.

Interim dividend like final dividend is an appropriation of profits has to be shown on the debit side of the Profit & Loss Appropriation Account.

When interim dividend is paid, the following entry is passed :

Interim Dividend A/c                     Dr.                     Interim Dividend A/c Dr.To Bank A/c

At the time of preparation of Final Accounts, it is closed by passing the following entry :

Profit & Loss (Appropriation)                   Dr.                To Interim Dividend A/c

Final dividend:

It is a dividend which is declared at the annual general meeting of the shareholders and is declared by the shareholders only on the recommendation of the directors. The dividend proposed by the directors is provided for in the final account of the company and is paid only after it has been passed at the annual general meeting of the shareholders.

Like interim dividend it is shown in the Profit & Loss Account debit side as an appropriation of profit. When a final dividend is declared than interim dividend is not adjusted unless the resolution mentions it specifically.

Section 205 (1) of the Companies Act provides that dividend for any financial year should be declared and paid out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of Sub-section.