Overview
Simple Invest 360 only allows a company's dividend to be paid out of the Retained Earnings account. Dividends processed cannot exceed the combined amount of Retained Earnings and accounting profit/loss for the period.
- This aligns with section 254T of the Corporations Act 2001 - dividends must not compromise the company's capacity to meet its debts, and must be based on its actual financial position.
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Reserve accounts (e.g. Investment Revaluation Reserve) aren't distributable profit - Simple Invest checks dividends against Retained Earnings, not total equity.
If the balance is not sufficient to process the dividends, you can transfer the balance from a relevant reserve account into Retained Earnings to account for the shortfall.
- This can be done through a manual journal, or during the Year-End workflow.
Option 1 - Manual Journal
Before starting the dividend workflow, reserves can be manually transferred from the reserve account into Retained Earnings with a journal entry.
| Navigate to Accounting from the Main toolbar | |
| Select Transaction List |
- Click New Transaction, then select Journal.
- Input the details for the transaction:
- Debit the relevant reserve account (either an existing or custom reserve account)
- Credit Retained Earnings for the shortfall amount, increasing the retained earnings to meet the dividends you want to process.
- Click Save to post the journal.
This example transaction utilises the Investment Revaluation Reserve account (58665/Unrealised Gains Reserve)
Once posted, the Retained Earnings balance will be updated. This is reflected in the Pay Dividends screen.
Option 2 - Year-End Workflow
During the Year-End process, adjusting the Reserve figures will determine the total amount available for processing dividends. Using this section allows you to adjust reserve balances during the Calculate Taxable income step.
| Navigate to Compliance from the Main toolbar | |
| Select Period Compliance |
- Click Start Workflow for the selected Entry Period.
- The Calculate Taxable Income screen will display. Scroll to the reserves section at the bottom:
- Changing the Adjustment column determines the closing balance of each reserve account.
- Positive adjustment figures cause a decrease in reserves, increasing income available for allocation.
- Select the reserve account and input the adjustment figure.
The income available for allocation will be automatically updated:
After clicking Save & Post, the Pay Dividends screen will then display the total amount available for distribution. Earnings available for distribution will be calculated based on:
- The existing balance in Retained Earnings, and
- The accounting profit/loss as calculated in Step 1. Calculated Taxable Income
- This amount includes any adjustments to the reserves you have processed.
The dividends in excess of retained earnings can now be processed!
- For instrucitons on this dividend process, see Pay Dividends for Companies.
FAQs
Q. Why can't I pay the dividend directly from the reserve account?
- Simple Invest 360 only recognises Retained Earnings as distributable profit for dividend purposes, in line with section 254T of the Corporations Act 2001. Reserve balances need to be transferred to Retained Earnings first.
Q. Does transferring a reserve balance to Retained Earnings change the company's total equity?
- No. The journal moves the amount between two equity accounts, so total equity is unchanged. It only changes how much of that equity sits in Retained Earnings and is therefore available to be paid as a dividend.
Q. What if I don't want to transfer the full shortfall?
- You can journal any amount up to the reserve balance. The Pay Dividends screen will only allow a dividend up to whatever the resulting Retained Earnings balance supports.