Glossary
Dividend
A share of a company's profit paid out to its shareholders.
What it means
A distribution of profit made by a limited company to its shareholders, usually expressed per share or as a percentage of nominal value.
Example
A dividend of 8 sen per share on 100,000 shares costs the company RM8,000.
Why it matters
Dividends are paid out of profit after tax and reduce retained earnings; they are not an expense of running the business.
In practice
A dividend is a distribution of profit to shareholders. It is not an expense, so it never appears in the income statement. It is deducted in the statement of changes in equity and reduces retained earnings. Once declared, it is a current liability until paid. Companies may pay an interim dividend during the year and a final dividend after the year-end results are known.
If a company has 50,000 ordinary shares and declares a dividend of RM0.10 per share, the total is RM5,000. It is taken out of accumulated profit, not charged against the year's trading.
The key distinction is between a dividend and debenture interest. Interest is a cost of borrowing, appears as a finance expense in the income statement, and must be paid. A dividend is a share of profit, is paid only when profit and cash allow, and is decided by the directors. Ordinary dividends vary from year to year and are never a fixed obligation.
If you are unsure where dividends belong in company statements, one of our teachers can walk through a full example with you. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 5.3 Limited companies (page 16).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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