Deemed Dividend (Interest free shareholders loans)

[laurenc89]

Good day,

I was hoping someone could assist me.

I have a deemed dividend on the interest-free portion of shareholders loans.
We have declared the dividend and the dividends tax has been paid.

How should this be accounted for?
Since a dividend has not actually been declared, and is of course just deemed for tax purposes.

Obviously once paid, the entry would be:
Dr. SARS payable
Cr. Bank

But what would the initial entry be:
Dr.?
Cr. SARS Payable

Thank you.

[Kevin Smith]

Not sure - but I think you would debit the dividends paid expense with the full value, credit SARS payable with the tax portion, and credit the shareholders loan with the after tax portion. When paid to the shareholders, CR bank and DR their loans to clear the entry.

[Andromeda]

Good day,

How should this be accounted for?
Since a dividend has not actually been declared, and is of course just deemed for tax purposes.

Obviously once paid, the entry would be:
Dr. SARS payable
Cr. Bank

But what would the initial entry be:
Dr.?
Cr. SARS Payable

Thank you.

Yes it's not really a dividend, it is what SARS calls it because they regard it as a distribution. I would just regard the penalty amount as an expense; a penalty on taxes. Accounting for it as a dividend will put you in contravention of the Companies Act and if there are other shareholders, a further dilemma.