DIVIDEND POLICY POSTA NA SIMU SAVINGS AND CREDIT COOPERATIVE SOCIETY LIMITED

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1 DIVIDEND POLICY POSTA NA SIMU SAVINGS AND CREDIT COOPERATIVE SOCIETY LIMITED

2 DIVIDEND POLICY TABLE OF CONTENTS PAGE 1. Introduction 3 2. Declaration Date 3 3. Dividend Payout Ratio 3 4. Dividend Yield 4 5. Accounting period 4 6. Distribution of Net Balance 4 7. Constraints 5 8. Repayment of Dividend 6 9. Return of Dividend Information Policy Amendments 6 2

3 DIVIDEND POLICY 1.0 INTRODUCTION The cooperative Societies, dividend were commonly defined as the distribution of surplus among the shareholder in proportion to the ownership once a year on a specific date. Once a Society makes a surplus, they decide on what to do with the surplus. They could continue to retain the surplus within the society, or they could pay out the surplus to the members in the form of dividends. Once the Society decides on whether to pay dividends, they may establish the situation of the society now and in the future. It also depends on the preferences of members and potential members. When the dividend has been declared it becomes a debt of the Society and cannot be rescinded. PART X Section 76.-(1) of the Cooperative Act No.20 of 2003 says No society shall pay a dividend or bonus or distribute any part of its accumulated funds before the balance sheet has been audited by a duly authorized auditor and approved by the General Meeting. A distribution of a portion of a Society's earnings decided by the Annual General Meeting representative on behalf of the members. The dividend is most often quoted in terms of the Tanzania shillings each share receives (dividends per share). Also referred to as "Dividend Per Share (DPS)." Dividends are payments made to members from a firm's earnings, whether those earnings were generated in the current period or in previous periods. 2.0 DECLARATION DATE After the AGM accept to pay dividend the Declaration Date is the date on which a Society s board of directors issues a statement declaring a dividend. The date on which the next dividend payment is announced by the Board of Directors of the Society. This statement includes the dividend's amount and payment date. It is also referred to as the "announcement date". The last day on which the holder of an option must indicate whether to exercise the option. Also known as the "expiration date". 3.0 DIVIDEND PAYOUT RATIO The percentage of earnings paid to members in dividends cover is calculated as earning per share divided by dividends per share. Calculated as: 3

4 4.0 DIVIDEND YIELD A financial ratio that shows how much a Society pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows: Dividend yield is a way to measure how much cash flow you are getting for each Tanzania Shilling invested in an equity position - in other words, how much "bang for your buck" you are getting from dividends. Investors who require a minimum stream of cash flow from their investment portfolio can secure this cash flow by investing in stocks paying relatively high, stable dividend yields. 5.0 ACCOUNTING PERIOD Normally the Society s accounting period runs from January to December each year and the financial statements are audited by the authorized auditors and approved by the Annual General Meetings (AGM), the AGM decide on what to do with that surplus. They could continue to retain the surplus within the Society for development, or they could pay out the surplus to the owners of the Society (Members) in the form of dividends. Once the AGM decides on whether to pay dividends, they may establish a declaration date on which a Society Board of Directors issues a statement of declaring a dividend. 6.0 DISTRIBUTION OF NET BALANCES According to section 67 of the Cooperative Societies Rules, 2004 and Society bylaw section 98, The annual net balance together with any sum available for distribution from previous years after the Balance Sheet has been audited by duly authorized auditor and required provisions have been made the equivalent sum set aside shall be applied in the following order: a) Not less than 20% of the surpluses retained in anyone year shall be set aside in cash and be carried to the Statutory Reserve Fund. b) For societies giving out loans or credit at least 15% of the annual net surplus of the Society shall be credited to the Bad and Doubtful debts (Loan loss) provision account provided such an account does not exceed 15% of the total society debts; c) Such amount not exceeding 15% of the net surplus retained in anyone year shall be set aside in cash in all societies to maintain the Share Transfer Fund provided such a Fund does not exceed 15% of the core capital which shall be to purchase shares of members who have withdrawn or whose membership has been terminated d) Such amount not exceeding 10% of the net surplus retained in anyone year shall be set aside in cash in all societies to maintain the Education Fund e) The reminder of the annual net balance may then be disposed as decided by the Annual General Meeting (AGM) as i) Payment of dividend on share income for members ii) Recapitalization of members shares iii) Contribution to a development fund or other funds iv) Payment of Honoraria to Board members and other unsalaried officers v) Payment to any other way approved by the General Meeting with the undistributed balance carried forward to the following year. 4

5 7.0 CONSTRAINT Dividends are cash payments made to shareholders from a Society's earnings, whether those earnings were generated in the current period or in previous periods. It has the impact at the date of payment to the Society. There are various constraints that may impact on a Society s decision to pay out earnings in the form of dividends. 7.1 Cash flow constraints (to set dividend with the impact of cashflow) The Society cash position information is extracted from the cashbook at a logical point in time, say after it is balanced and closed. The bank balances will reflect the cash position for the society. Alternatively, the society could prepare a cash flow statement, which when accurate should be closed to the actual cashbook balances on a month by month comparison. This cash flow statement will estimate the operating cash available for the society to use in its activities. For planning purposes, management committee should be able to evaluate whether cash receipts will be sufficient to meet the anticipated needs for the society as the cash flow forecast. International Accounting Standard (IAS) No. 7 requires cash flow statements to be presented such that they show cash flows from operating, investing and financing activities. Operating activities refer to the principal revenue producing activities the institutions. Investing activities refers to acquisition and disposal of long-term assets and other investments not considered cash or cash equivalents. (Cash equivalents are short term, highly liquid investments that are readily convertible to know amounts of cash and which are subject to an insignificant risk of changes in value.) Financial activities are those that result in changes in the size and composition of the equity and borrowings of the institution. The recommended format for the Society as per IAS No. 7 is in the indirect method cash flow. 7.2 Legal constraints Dividend policy will adhere to respective Act and rules governing the payment of dividend 7.3 Tax constraints To look for tax calculations and how the law says about the tax calculation about the dividend. 5

6 8.0 PAYMENT OF DIVIDENDS When the Society does very well and gets profits, sometimes the AGM may decide to distribute part of the profits as dividends. When this happens, the following records should be made. 1. Clerk should get the total amount of dividends to be paid out. 2. Clerk writes a payment voucher for the total amount 3. Clerk gets a list of the name of the members who are going to be paid dividends and attach to the voucher to show where the money is going. 4. The amount that goes to each member should be entered in the ledger card and in the passbook of each individual member. 5. Each member who is being paid dividend, should sign against his/her name on the list of members receiving dividends, at the time of payment is being made to the member. 6. At the end of the day, enter the amount as in the payment voucher in the Cash Book. Note: Payment of dividend is treated in the same way as payment of any other expenses. Ratio of dividend Total distributable surplus divided by Number of share at that date = Dividend per share 9.0 RETURN OF INFORMATION To look proper way on confirmation on return of dividend and satisfy that the dividend has been paid to the owners 10.0 POLICY AMENDMENTS This Dividend Policy is subject to change by the Board of Directors in whole or in part, from time to time when it is considered necessary in the interest of the Society and the members. 6

International Financial Accounting (IFA)

International Financial Accounting (IFA) Preparation and presentation of Financial Statements DEPARTMENT OF BUSINESS AND LAW ROBERTO DI PIETRA SIENA, NOVEMBER 4, 2013 1 INTERNATIONAL FINANCIAL ACCOUNTING