Note
BGL does not provide accounting or taxation advice. The following is designed to act as a guide for Simple Invest 360 users. It is not designed to be accounting or tax advice and should not be taken as a strict guideline. Other methods that are more suitable may be used instead of these steps.
Overview
During the year-end process, dividends paid out in Simple Invest 360 are limited to the amount of earnings available for distributions. This includes the balance of the Retained Earnings account combined with the current year accounting profit/loss.
- Reserve accounts (e.g. Investment Revaluation Reserve) aren't included in this distributable profit.
- Simple Invest checks that dividends don't exceed earnings available for distribution, not total equity.
Attempting to process dividends exceeding the amount available will result in an error.
If this amount is not sufficient to process the dividends, you can transfer the balance from relevant reserve accounts 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, Retained Earnings will be increased resulting in more earnings available when paying dividends.
- This is reflected in the Pay Dividends screen.
Option 2 - Year-End Workflow
During the Year-End process, the pre-filled reserve account adjustments calculated for the selected period can be changed to increase the earnings available for distribution.
This will be completed in 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:
- In this example, the entity recorded an increase of $5,737 from revaluations of investments.
- By default, this will be added to the Investment Revaluation Reserve account.
-
Change the adjustment amount, reducing it by the amount to be used for paying dividends.
The Income Available for Allocation will change to reflect this adjustment.
- Click Save & Post to process these changes.
Note - Reserve Account adjustments exceeding $0
Exercise caution with the amount entered in the adjustment column. It is recommended to keep this value below or equal to $0, as entering a figure above this amount can result in negative balances in reserve accounts.
Changing the pre-filled adjustment figure to "$0" causes the reserve balance calculated for the current period to instead be added to the earnings available for distribution.
Process the Dividends from this Increased Balance
With the adjustments made, the year-end workflow can now be completed up to Step 2.
The Pay Dividends screen will display the total amount available for distribution including the changes that have been processed. Earnings available for distribution will be calculated based on:
- The existing balance in Retained Earnings, and
- The Income Available for Allocation 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 instructions 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.