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Hi Mike
I’m really not sure how to put this question, so apologies if it’s a little confusing!
1. When a parent owns shares in both a subsidiary and an associate how do they treat dividends received from a subsidiary and an associate in their (the investor’s) single entity statements? What is the double entry?
2. Is the equity method for accounting for associates only used when producing consolidated accounts?
Thank you.
Hi,
The dividend received is treated as any normal dividend receipt, DR Bank/receivable CR Investment income.
Equity accounting is always used for associates, regardless of whether consolidated accounts are prepared.
Thanks
Thank you very much Mike.
I appreciate I must not have understood this very well….
I thought when the equity accounting method is used, that the investment income recognised in the statement of profit or loss, relating to the associate, was the investor’s share of the associate’s profits after tax, time apportioned (if necessary) to reflect the proportion of time, for that year-end, that the investor had held shares for!
1. i.e. I thought the dividends were ignored and this figure supplanted any recognition of dividend income, but I thought this was only done in consolidated statements?
2. Does that mean we do the above calculation and recognise the result and recognise the dividends in addition to this?
3. [I appreciate this is probably obvious to most] Does that mean, that in the investor’s single entity accounts, specifically in the statement of financial position, we measure the ‘Investment in Associate’ using the same equity method we would do when preparing consolidated accounts?
4. Do we do PUP adjustments for the single entity accounts, if there’s trade between the investor and associate and unsold inter-company goods?
Thank you again.
Hi,
The key is that you said it was the single entity accounts, so it is treated as normal. There will then be adjustments on consolidation (ignore and dividends received from the parent in the group accounts) and for equity accounting too (adjusting the investment in associate figure).
Yes, although associates appear in all texts as part of group accounts, we don’t have to be preparing group accounts to equity account for an associate. If we have no subsidiary but significant influence over an entity then that will be accounted for using equity accounting.
PUP adjustments are made in the group account for transaction between P and S, then there is also a PUP adjustment when P and A trade and there is unsold inventory at the reporting date.
Hope that clears up your doubts, just let me know if you’re still stuck.
Thanks
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