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Dear Sir
I would like to ask a question regarding to calculate group share of associate’s RE post acquisition:
For Example: A group acquired 30% of B on 1 April 2014. B’s profit after tax for the YE 30 September 2014 was $400,000 and it paid dividend on 20 September 2014 of $150,000.
So the group share of associate’s RE post acquisition is:
(400-150)*6/12* 30%
or : (400*6/12 – 150) *30% ?Thank you so much
Answer is 400- 150(dividends)*6/12 because divindeds needs to be paid first to the SH before reaching the total RE that can be approtioned bwtn the parent and associate.
I think that too. But in MCQ 13, mock exam 3 Bpp for exam up to June 2015(page 272 for question and 283 for answer), the answer is 400*6/12 – 150 .
That’s why I was confused.
Thanks for your anwerDaisy, I’m sorry to say that Angel is wrong 🙁
Since two or three years ago, we no longer time apportion dividends. A dividend is deducted from the period’s profits in which the dividend is paid.
So the answer is (time apportion the year’s profits) then deduct the dividend in full from that post acquisition period’s profits
400 * 6/12 = 200
200 – 150 = 50
That’s our share of the associate’s post-acquisition retained
Thank you for your reply. I just have 1 more confusion. So what happen if there is a 3-month acquisition only? The time apportion the year’s profit is less than dividend paid. So the parent company wont have any shares in the associate’s post-acquisition retained?
Besides, I see in the Mock exam 1 of BPP, section B question 3 (page 224 for question and 236 for answer), they time apportion the dividends as well.
I am really confused.
Thank you so much for your time!
Are you telling me that, in a mock exam, BPP DO time apportion and in others, they DON’T?
As for share of retained earnings being less than dividend received – yes! Then cost + share of post acquisition retained will come to a figure less than cost. And isn’t that correct? We’re received by way of dividend more than we could have expected and that excess is then deducted from cost
If you prefer, it’s like a repayment of some of the investment.
But think about this! Is it not likely that the amount that we have had to pay for the shares on acquisition was inflated because of the forthcoming anticipated dividend. So a dividend in excess of our share of post acquisition profits is about right isn’t it? It reduces the cost of the investment – that same cost that was inflated because of the anticipated dividend
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