Background Information

You are a CPA working for an accounting firm called AccPlus. One of your clients is Cairns Ltd. James Manning is the Managing Director of Cairns Ltd. He often contacts you for accounting issues, which he cannot understand. Currently he has expressed some concerns over a couple of accounting issues as shown in the memo below and he is seeking for your professional advice.

I have been told by a colleague who is studying accounting that our current accounting policy in relation to dividend may not be correct or in accordance with accounting standards. My colleague stated that many public companies have dividend policies, which have been communicated to shareholders as to the amount of the fully franked distribution, which will be paid to shareholders. It may be argued that such a policy provides the company with a constructive liability to pay the dividend. Currently, the dividend is not treated as constructive liability in Cairns Ltd. Could you please advise whether the constructive liability should arise?