. If the board of directors has the authority to declare the dividends within the current fiscal year, the statement of changes in equity would disclose annual dividends as well as interim dividends. Therefore, no other statement is needed to disclose an appropriation of retained earnings through dividends. 1) K-IFRS requires the statement of appropriation of retained earnings. Explain why. 2) Does the appropriation of retained earnings for, say, R&D change the total retained earnings? Explain why
1. If the board of directors has the authority to declare the dividends within the
current fiscal year, the statement of changes in equity would disclose annual
dividends as well as interim dividends. Therefore, no other statement is needed
to disclose an appropriation of
1) K-IFRS requires the statement of appropriation of retained earnings. Explain
why.
2) Does the appropriation of retained earnings for, say, R&D change the total
retained earnings? Explain why
Statement of appropriation of retained earnings is a statement that shows the funds which have been earmarked (set aside) by the Board of directors for a particular use. Such funds are not available for distribution to the shareholders. Appropriations usually include expansion plans, mergers and acquisitions, research and development, reserve against lawsuit settlements etc.
Statement of changes in Equity shows the changes in owners equity during the accounting period. Eg: Dividends, gains and losses, prior period errors etc.
Considering the above statements we can say that, these appropriations do not lead to any changes in the total stockholder's equity or total retained earnings but it merely sets aside a portion of funds for a purpose. Both appropriated and unappropriated retained earnings are shown under the common head of retained earnings.
Therefore, these funds are not shown in the statement of changes in equity but are shown separately in Statement of appropriation of retained earnings.
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