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Good day,
When adjusting for the dividends I understand that we credit the investment but I dont understand why we debit Retained Earnings. Why do we reduce it?
Hi,
When the dividends were received we would have taken them to profit or loss as investment income. We therefore need to remove them from profit or loss and hence from the retained earnings on the SFP.
Thanks
Hi,
I think if it is the case of subsidiary consolidation, there is no need to adjust the Equity on consolidation because the Paren’s RE and the post acquisition profit of subsidiary cancel out each other for the dividend payments.
However in the case of associate, when there is post acquisition profit we Dr Investment Cr Group RE, then if there is dividend received from associate, we have another entry Dr Group RE Cr Investment
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