Could you please help me to clarify something around the accounting for investment in other companies?
1) When the company A buys less than 20% of voting shares for say $1000 in the company B then company A will show the following in its individual statements:
SOFP (non-current assets): Dr Investment Cr Bank ($1000)
In the following periods, if company B pays out dividends then we record them on the SOPL as finance income before “profit before tax” (i.e. will be included in retained earnings of B). No share of B’s profit is shown in A’s statements as well as no impairment of investment. And the same figure goes to Consolidated statement of a group which Company A is part of.
I.e. if Company B doesn’t pay any dividends in the periods following the investment then there is no change to A’s statements in terms of that investment.
The same treatment is applicable if A buys more than 20% for $1500 but it is obvious that there is no significant influence.
2) if A bought more that 20% and there is a significant influence i.e. B is associate of A then both in individual statement of A and in the Consolidated statement of a group which Company A is part of there will be the following treatment of that equipment:
SOPL (non-current assets): Investment in associate: cost $1500 + Share of post acquisition profits of B less any impairment of that investment.
SOPL: Share of post acquisition profits of B less any impairment of that investment
This means that accounting for associate in A’s individual statements and in consolidated statement of a group which A is part of investment in Associate will be treated the same way.
Is it correct?
Thank you in advance!
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