The correct answer is: B. Provisions
Unclaimed dividends are amounts of dividends that have been declared by a company but have not been claimed by the shareholders. They are considered a liability of the company and should be shown in the balance sheet under the heading of “Provisions.”
Provisions are liabilities that are not certain to arise or whose amount cannot be determined with certainty. They are usually created to cover potential losses or expenses that may occur in the future. In the case of unclaimed dividends, the company is liable to pay the dividends to the shareholders if they claim them. However, it is not certain whether or not the shareholders will claim the dividends, and the amount of the dividends that may be claimed is also uncertain. Therefore, unclaimed dividends are classified as provisions in the balance sheet.
The other options are incorrect for the following reasons:
- A. Reserve and Surplus. Reserves and surplus are equity accounts that represent the excess of assets over liabilities. They are not liabilities and should not be used to account for unclaimed dividends.
- C. Current Liabilities. Current liabilities are liabilities that are due within one year. Unclaimed dividends are not due within one year and should not be classified as current liabilities.
- D. Miscellaneous Items. Miscellaneous items are a catch-all category for items that do not fit into any other category. Unclaimed dividends should not be classified as miscellaneous items.