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    Accounting For Appropriation

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    Jb De Guzman
    The document discusses accounting for appropriations of retained earnings. It provides an example where an entity appropriates retained earnings for treasury shares purchased. The appropriation has no effect on total retained earnings or shareholder equity, but indicates that the appropriated amount cannot be used to pay dividends. When the appropriation is no longer needed, such as if treasury shares are reissued, the appropriated amount is reversed back to retained earnings.

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    Accounting For Appropriation

    Uploaded by

    Jb De Guzman
    17 views1 page
    The document discusses accounting for appropriations of retained earnings. It provides an example where an entity appropriates retained earnings for treasury shares purchased. The appropriation has no effect on total retained earnings or shareholder equity, but indicates that the appropriated amount cannot be used to pay dividends. When the appropriation is no longer needed, such as if treasury shares are reissued, the appropriated amount is reversed back to retained earnings.

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    Accounting-for-Appropriation

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    The document discusses accounting for appropriations of retained earnings. It provides an example where an entity appropriates retained earnings for treasury shares purchased. The appropriation has no effect on total retained earnings or shareholder equity, but indicates that the appropriated amount cannot be used to pay dividends. When the appropriation is no longer needed, such as if treasury shares are reissued, the appropriated amount is reversed back to retained earnings.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    17 views1 page

    Accounting For Appropriation

    Uploaded by

    Jb De Guzman
    The document discusses accounting for appropriations of retained earnings. It provides an example where an entity appropriates retained earnings for treasury shares purchased. The appropriation has no effect on total retained earnings or shareholder equity, but indicates that the appropriated amount cannot be used to pay dividends. When the appropriation is no longer needed, such as if treasury shares are reissued, the appropriated amount is reversed back to retained earnings.

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    Accounting for Appropriation

    The establishment of the appropriation is recorded as:


    Retained Earnings xxx
    Retained Earnings Appropriated xxx
    When the appropriation is no longer necessary because the conditions for which it is
    established no longer exist, the appropriation is simply reversed.
    Retained Earnings Appropriated xxx
    Retained Earnings xxx

    Illustration
    An entity purchased treasury shares at a cost of P500,000. Legally, if the treasury
    shares are not yet reissued at year-end, this would require legally an appropriation of
    retained earnings.
    Retained Earnings 500,000
    Retained Earnings Appropriated for Treasury Shares 500,000
    The entry has no effect on either the total retained earnings or total shareholder’s
    equity. Any appropriated balance is still part of retained earnings.
    Moreover, the appropriation account does imply that there is a cash fund established for
    the same.
    It simply indicates that the portion appropriated cannot be used as basis in paying
    dividends to the shareholders.
    When no longer necessary, the appropriated balance shall be reverted to free retained
    earnings.
    Thus, if the treasury shares are subsequently reissued, the appropriated balance is
    canceled.
    Retained Earnings Appropriated for Treasury Shares 500,000
    Retained Earnings 500,000

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