Dividends reduce retained earnings in equity

Steps:

• Dividends represent profit distributions to shareholders, not expenses.
• They do not affect the income statement but impact equity.
• In the statement of changes in equity, dividends deduct from retained earnings.
• This reflects the reduction in accumulated profits available for future use.

Why C is correct:

• Under IFRS and GAAP, dividends paid are shown as a deduction from retained earnings in the statement of changes in equity, directly linking to profit appropriation.

Why the others are wrong:

• A: Dividends are not a finance cost; finance costs relate to interest on borrowings.
• B: Dividends are not administrative expenses; they are equity transactions, not operating costs.
• D: Share capital records issued shares' par value, unaffected by dividend payments.

Final answer: C