Question : Which of the following statement is correct, with respect of Adjustment for Proposed Dividend is:
Option 1: Add previous year's proposed dividend under net profit before tax and extra-ordinary items and deduct it under investing activities.
Option 2: Add previous proposed dividend while calculating net profit before tax and extraordinary items and deduct previous year's proposed dividend under Financing Activity.
Option 3: Add current year's proposed dividend under Net Profit before Tax and Extraordinary items and deduct current year's proposed dividend under Financing Activity.
Option 4: None of the above.
Correct Answer: Add previous proposed dividend while calculating net profit before tax and extraordinary items and deduct previous year's proposed dividend under Financing Activity.
Solution : Answer = Add previous proposed dividend while calculating net profit before tax and extraordinary items and deduct previous year's proposed dividend under Financing Activity.
It should be added while calculating net profit before charging Tax and extraordinary items and should show the outflow of financing activities. When adjusting for proposed dividends, the previous year's proposed dividend is added to net profit before tax and extraordinary items and then deducted under financing activities. This ensures proper classification of dividends in the financial statements while calculating net profit and cash flows.
Hence, the correct option is 2.
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