Accumulated Profits and Losses (Retained Earnings)

In Accumulated Profits and Losses (Retained Earnings) has  common items that either increase or decrease to this account as follows:

1. Net income (loss)

2. Prior period adjustments (error corrections and certain changes in accounting principle)

3. Dividends our of earnings (cash, property, liability and share)

4. Adjustment as a result of quasi-reorganization

5. Appropriation or restriction of retained earnings

6. Reversal of appropriation

7. Loss on share capital (including treasury) transaction

Whet it comes to Dividends out of earnings, the declaration or distribution of company’s earnings are recognized on the date of declaration as charge (debit) to the accumulated profits and losses. However, when shareholder approval is required for dividends declared prior to balance sheet date, a liability should be recognized only once the annual general meeting approves the dividends, because before the date the entity does not have a present obligation. Until that occurs, the dividend is only a contingent liability. If dividends are declared after the balance sheet date but before the financial statements are authorize for issue, the dividends are not recognized as a liability at the balance sheet date as they do not meet the criteria of a present obligation in PAS 37. Such dividends are disclosed in the notes to the financial statements in accordance with PAS 32.

Besides, according to the author of the accounting book that I have read, if the dividends are not declared at balance sheet date, no liability is recognized at balance date.


Tonight, upon reading an article written by a Tax Manager of an Audit Firm in the Country stated that NON-STOCK, NON-PROFIT (NSNP) CORPORATIONS OR ORGANIZATIONS not really exempt from the payment of all taxes.
The writer stated that the grant of tax exemption  provided under the Constitution (Section 4(3), Article XIV of the Constitution) and the Tax Code may well be among the reasons why a many trustees and officers of Non-stock, Non-profit organizations are under the mistaken notion that their tax exemption is absolute.
In support, the writer stated  about the case of (Lladoc vs. Commissioner of Internal Revenue, 14 SCRA 292)  decided by the Supreme Court, it was held that the tax exemption of charitable and religious institutions under the Constitution refers only to real property exemption and not to other types of taxes.
The exemption privileges do not cover all types of income and activities. Income from properties, as well as from activities conducted for profit by NSNP corporations is subject to income tax. Section 30 of the Tax Code explicitly provides that “the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under this Code”. Because of this, income earned by a non-stock non-profit institution from the sale or lease of its real property is subject to tax. Interest income from bank deposits and yield from deposit substitutes are likewise subject to the final withholding taxes.
Likewise, income earned by the educational institutions from investments in shares of stock which is not deemed related to its purposes as an educational institution and is subject to income tax. Income earned from the sale or lease of real property or from fund raising activities although to be used exclusively in furtherance of the objectives and purposes of the organization are likewise, in general, taxable.
Both NSNP organizations and educational institutions are neither exempt from the liability to withhold taxes on their employees and other income payments that are subject to withholding tax under the regulations.
The author also recommends that when in doubt, a ruling may be secured from the BIR on whether certain income or receipts can be exempt or should be taxable. Exemptions from the general rules on taxability may also be obtained, in certain cases.