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  2. Dear Sir Mike,

    Kindly explain why we should include proposed dividend payable & receivable when we calculate consolidation retained earnings. shouldn’t be eliminated since it’s inter entity transaction.

    • The receivable and the payable are eliminated but we can only eliminate when we are in the position of having recognised

      And we have to recognise because, within the dividend payable amount is the dividend related to the nci

      And during the process of elimination, only the element of the parent’s share is eliminated from the payable figure leaving the amount attributable to the nci as a liability

      In addition, if we don’t process the dividend, that means that retained earnings in the two entities are incorrect

      Cancellation is merely a presentation exercise to remove the idea that we can have an amount payable to ourselves. But the entry should still be made because that dividend IS a payable and IS a receivable

      When putting through the entries for the two entities, retained earnings are reduced and payables increased (for the subsidiary) whilst retained earnings are increased and receivables are increased (for the parent).

      It’s only the receivable that is cancelled against a (large) part of the payables, but the retained earnings figure isn’t eliminated

      Better?

  3. Hi Mike,

    I was reading a financial book published in 2007, stating that companies may wish not to consolidate if they believe it’s misleading due to the “control” only being” temporary” or because the businesses are “Heterogeneous”. Does that still apply today? and if so where can I find more material about that. Thanks.

    Regards,

    David

    • Isn’t it 90% of a $10,000 dividend proposed by the subsidiary? And the parent owns 90% of the subsidiary

      So the parent is accounting for the receivability of their share of that $10,000 proposed subsidiary dividend

      OK?

  8. Not related to this lecture, if you are not given number of share how can you find out nci at date of acquisition if parent aquired 75% of subsidery for $2,000,000 and share price is $4.04?

  10. Hello Sir
    I have few queries
    1. Why we cut the Dividend from Current Asset?
    Because it is an adjustment so there must be double entry that we have to show in the exam as well…
    2. Can we add the Dividend’s share of NCI in their workings as well?

    • When we ignore the current asset of dividend receivable from a related company (subsidiary or associate) in double entry terms, that’s a credit

      The debit is against the parent company’s investment income on the statement of profit or loss

      “Can we add the Dividend’s share of NCI in their workings as well?” is this the same as “Can we add the NCI’s share of Dividend in their workings as well?

      The answer is NO!

      The dividend from any company is paid as an appropriation of profits. It is not an expense of the year to be deducted in arriving at net profits

      If you’re going to give the NCI their share of …..

      this year’s
      subsidiary
      adjusted
      time-apportioned
      profit after tax

      then you’re crediting them with those profits out of which the subsidiary is then going to deduct the dividend

      To credit the NCI separately with their share of dividend (or even to credit the DIVIDEND with their share of NCI :-)) will be to double count

      Is that ok?

  11. Dear Mike,

    As always thank you very much for great lectures.
    Could you please explain why we do not take off that £9,000 from Retained Earnings as well when we cancel Receivables in P against Payables in S, i.e. how can we have that $9,000 included in P’s Retained Earnings when we are not going receive it (because we cancelled receivables for that figure).

    Many thanks in advance.

      • So please don’t multiple post! If you post it in Ask the Tutor, I SHALL answer it because I SHALL see it. But I also keep an occasional eye out in the Latest Comments and, if I see anything there of relevance to my papers, I read those comments too

        That means that, like now, I have the same question in front of me. Please, if you want an answer, post only on Ask the Tutor. Do NOT multiple post

        If it’s a question not for me, then post in the general forum

        Thanks

  14. MINI EXERCISE
    10 GOODWILL
    Answer 16

    Mike, could you please also explain, why in answer in FV of SNA @doa stands:

    Ret earnings b/F 1500
    Ret earnings 6 months 1000

    Shouldn’t it be 3500 and 500 respectively?

    Thanks!!!

  15. Dear Mike!
    I have a question regarding mini exercises.
    MINI EXERCISE
    10 GOODWILL
    Answer 8

    I don’t understand, from where comes addition 2000 in the line:

    Ret earnings 6 months (21000+2000)/2

    So 21000/2 is RE from 1 Oct 2008 till 1 Apt 2009, and what is 2000?

    Thank you!

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