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34 HASKINS & SELLS th M a y Relating to Dividends THERE is perhaps no subject connected with accountants' reports which is of more importance than dividends. The subject has a popular interest because it touches intimately the relations of corporations with stockholders. From the stockholders' point of view, safety of principal is an important consideration; but the interest of the stockholder focuses very sharply on the return from an investment. The subject is of more than passing interest at the present time because of present and recently past economic conditions, and the tendency on the part of corporations to omit entirely, or reduce, dividends, particularly on common shares. The accounting procedure, in order to be technically correct, should follow the legal prescriptions, which permit dividends to become an actual liability only after proper declaration by the directors. The typical dividend imposes no difficulty upon the accountant in its handling; the dividend is declared, it is charged against the profits or against surplus, and set up as an actual liability. There are, however, so many typical cases arising today that each such case must be made the subject of consideration and study on the part of the accountant. This is particularly true where the corporations are large, the amounts involved are important, the shares have a wide distribution, and the financial affairs of the corporation are followed by a public keen for information. Shares carrying cumulative preference rights as to dividends require special consideration. It may be said probably without fear of contradiction, that cumulative dividend preference rights do not warrant or justify a corporation in setting up or stating any dividend liability in favor of stockholders having such rights, until the dividend has been declared by the directors. The wording of financial instruments, by-laws, contracts, and agreements is frequently obscure, and sometimes misleading, as to the rights of stockholders and the duties of corporate representatives. In one contract of consolidation, the following provision was made: "The several shares of the preferred stock shall be entitled from and after the issue of such shares respectively, to receive out of the net profits of the company semi-annual dividends at the rate of six per cent. (6 per cent.) per annum. Said dividends shall be cumulative; that is to say, if not earned and paid in any given year, they shall accrue and accumulate, as if an interest charge, but shall be paid only out of net profits." The crux of the situation, in this case, is found in the words "shall be entitled," which perhaps suggest a definite expression as to the rights of stockholders to receive dividends. It is customary, however, in interpreting agreements of this character, to search for the intent, as indicated by the entire verbiage, rather than certain isolated words or phrases. It is therefore
Object Description
Title |
Relating to dividends [News items] |
Author |
Anonymous |
Subject |
Dividends -- Accounting |
Personal Name |
O'Connell, John Harvey |
Citation |
Haskins & Sells Bulletin, Vol. 05, no. 05 (1922 May 15), p. 34-35 |
Date-Issued | 1922 |
Source | Originally published by: Haskins & Sells |
Type | Text |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Libraries. Accounting Collection |
Date-Digitally Created | 2009 |
Identifier | HS Bulletin 5-p34 |