Stock Dividend
When a stock dividend is received, the client usually has the choice of taking the cash or receiving extra stock.
- If cash is chosen, then a single entry is made just as for an ordinary dividend:
|
Movement code |
CGT/Accounting rule |
Description |
|
SDC |
V1/Income/Expense |
Ord stock div - cash |
- If the stock is chosen then two entries are required.
The idea is that a notional dividend is received and the cash is used to purchase the stock.
So, the first entry is an income entry and the second is a capital entry:
These are the movement codes which could be used:
|
Movement code |
CGT/Accounting rule |
Description |
|
SDN |
V8/Income/Expense |
Ordinary stock div - Notional div |
|
SDS |
A3/Normal Purchase |
Scrip dividend (pre 6/4/98) |
|
NSD |
A1/Normal Purchase |
Scrip dividend (from 6/4/98) |
|
SDP |
V1/Income/Expense |
Ord stock div – cash on stock |
- Record the income with the net amount and the notional tax using a SDN movement code with a V8 rule. If the nominal ledger is in use, override the Logged-In account to use a suspense account.
- Record the capital movement using an NSD entry which has an A1 rule code. The amount is the net amount and again the Logged-In account is overridden to clear the suspense account.
Note that prior to 6/4/98, the rule code for the capital element of the transaction was an A3 for a purchase of rights and the movement code was SDS rather than NSD.
This completes a normal stock dividend, but sometimes the stock choice is accompanied by a fractional amount of cash. In this case, a third entry is required using movement code SDP with a V1 rule code.
When stock dividends are set up for Autopost, they follow the same pattern. Usually, the Security History has three events with the same date. If there is a fractional amount, a fourth event is required:
|
Ordinary stock div – cash dividend |
corresponding to the SDC mvt code |
|
Ordinary stock div – notional dividend |
corresponding to SDN |
|
Ordinary stock div – stock |
corresponding to SDS or NSD |
|
Ordinary stock div – cash div on stock option |
corresponding to SDP |
When the Autopost is run, assuming there is no fractional cash amount, the user is presented with three entries. It is possible to tick either the SDC entry or both of SDN and NSD (or SDS). However, it is not possible to tick all three. This represents the choice that the client makes between taking cash or stock.
The amount of the cash dividend is usually the same as the amount of the notional dividend. However, the stock choice is sometimes more generous. If the stock choice is significantly more generous than the cash choice, then the stock dividend is referred to as an enhanced scrip dividend. This is described below.