07. Property Dividend

What is a Property Dividend?

A property dividend (also known as a noncash dividend) occurs when a company distributes noncash assets (e.g., investments, inventory, equipment) to its shareholders instead of cash.

Under US GAAP, property dividends are measured and recorded at the fair value of the assets to be distributed on the declaration date. Any difference between the book value and the fair value of the asset is recognized as a gain or loss in the income statement.

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Recognition and Measurement

Step	Description
1. Declaration Date	Measure the property at fair value and recognize a liability (Property Dividend Payable). Recognize any gain or loss on the asset.
2. Date of Distribution	Settle the dividend payable. No additional gain or loss is recognized on the payment date.

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Journal Entry: Declaration Date

Assume the company declares a property dividend of investment securities with a book value of $10,000 and a fair value of $12,000.

Dr. Retained Earnings            $12,000
   Cr. Property Dividend Payable             $12,000
Dr. Investment (or Asset) Revaluation  $2,000
   Cr. Gain on Investment                     $2,000

Explanation:

Retained earnings is reduced by the fair value of the dividend.

The asset is written up to fair value (if needed), and any gain is recognized in the income statement.

⚠️ If fair value is less than book value, record a loss instead.

Journal Entry: Distribution Date

Dr. Property Dividend Payable   $12,000
   Cr. Investment (or Asset)            $12,000

No gain or loss is recognized at this point — the difference is already captured at the declaration date.

USCPA Exam Tip

• Focus on the timing: Gain/loss recognized on the declaration date, not distribution.

• Retained earnings is reduced by the fair value of the asset.

• Compare the book value vs. fair value for potential gain/loss.

• Know the difference between cash, stock, and property dividends.

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