How is the previous year's Proposed Dividend treated once it is declared and approved by shareholders?

It is debited to surplus in the Statement of Profit and Loss

Once the previous year's proposed dividend is declared and approved by shareholders in the Annual General Meeting (AGM), it transitions from being a proposed distribution of profits to becoming an actual liability of the company. It represents an obligation to distribute the dividend to shareholders in the near future. To account for this transition, the proposed dividend is debited (or decreased) from the surplus (or retained earnings) in the Statement of Profit and Loss. This ensures that the company's accumulated profits are reduced by the amount of the dividend that is now set to be paid to shareholders. This treatment accurately reflects the financial position of the company, as the proposed dividend is no longer contingent but has transformed into an actual financial obligation. The debit to surplus in the Statement of Profit and Loss captures this change and aligns the company's financial records with the reality of the approved dividend distribution. In summary, when the previous year's proposed dividend is declared and approved by shareholders, it is debited to surplus in the Statement of Profit and Loss, recognizing it as a reduction in accumulated profits and a genuine liability of the company.