What are Unappropriated Retained Earnings
Unappropriated retained earnings consist of any portion of a company's retained earnings that are not classified as appropriated retained earnings. Appropriated retained earnings are set aside by the board and are assigned to a specific purpose. They will not be distributed to shareholders as dividend payments. Unappropriated retained earnings are not allocated for a specific purpose by the board, such as factory construction or marketing. Unappropriated retained earnings can be passed on to shareholders in the form of dividend payments.
BREAKING DOWN Unappropriated Retained Earnings
Unappropriated retained earnings help to determine the amount of dividend that will be paid to shareholders. They are not directed towards a specific purpose by the board so are available to be paid out as dividends. The greater the unappropriated retained earnings, the higher the dividend that can possibly be paid. Unappropriated retained earnings are divided among all of the outstanding shares of the company and paid as dividends according to a predetermined dividend payment schedule.
Example of Unappropriated Retained Earnings
For example, if Company XYZ has $5,000,000 in retained earnings, not all of that is necessarily going to be available for payment to shareholders in the form of dividends. The board may have projects or other capital expenditures for which a portion of these earnings might be set aside. The portion of retained earnings that is set aside by the board is known as appropriated retained earnings. These funds are assigned to a specific purpose and are not available to be paid out as dividends. However, the portion of the retained earnings that are leftover after the rest of the earnings have been appropriated are known as unappropriated retained earnings. These funds can be used for many purposes, including dividend payments.