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Hello Dear Mike
Hope you very well 🙂 .
I have some shorts questions about accounting treatment for profit and dividend!1- Suppose A acquires 10% of B at 1/1/2000 for $10000 :
Dr Investment $10000
Cr Cash $100002- At 31/12/2000, Profit of B=$3000 :
Dr Investment $300
Cr P&L ( if investment is recognised through FVTOPL) $300
(or Cr other comprehensive income if investment is recognised through FVTOCI) $3003- B pays $1000 as dividend for 2001:
Dr Cash $100
Cr Investment $1004- Suppose A had acquired 30% of B with with the same information. I mean instead of simple investment, B becomes associate of A. Then the answer to questions 1,2,3 will be the same?
Thank you with all your help 😉
Kind RegardsIn parent’s own records where the investment is an associate, I believe that the entries will be:
Dr Investment in associate
Cr Cash
With the cost of the investmentDr Cash
Cr Investment income
With the dividend when receivedIn the consolidated accounts, well, you have the detailed treatment of associates set out for you in the course notes and lecture examples and with explanations in workings W3 Consolidated Retained Earnings, W5A Investment in Associate and W5B share of Associate’s profits for the Consolidated Statement of Profit or Loss
Thank you for your reply.
I know accounting treatment when it is subsidiary.
would you please show accounting entries for profit too ? (I mean the question number 2 of the first post)And also there is no different for accounting treatment when there is associate (say 30%)or when it is a simple investment (say 10%) ? The same,Yeah?
Thank you in advance.
I don’t believe that any entry is necessary in the parent’s own records to reflect the profit. In the parent we will record merely the dividend received. The investment will remain at historic cost
In the consolidation we’ll reflect the share of post-acquisition profits
If the investment is merely an investment, it’s not consolidated and the parent will merely record the dividends as they are received
If it’s an associate, well, I explained that above in my last post. Again, in the parent’s own records, cost of investment will remain the same and does not reflect the parent’s share of post-acquisition retained in the associate
Hello Mike
Thanks for your answer! Well, would you please have a look at December 2012, question 1, note iv.
What I understand from the answer (W3), is that the investment in associate is :Investment in associate = Cost + post-acquisition profit – dividend received.
So in fact are adding profit to investment and deducting dividend received from the investment in associate and this is confusing me as I think it is NOT the same as your answers in the above post.Kind Regards
Oh yes it is!
My working W5A is calculated as:
Cost of investment (as above)
+
Group’s share of associate’s post-acquisition RETAINED earnings (ie post-acquisition earnings net of the dividend paid by the associate)
–
Any impairment
The deduction that you talk about is already accounted for in my “share of post-acquisition RETAINED earnings
Ok?
Hello Mike
Thanks for your answer! Unfortunately I am confused yet!See, according to the second post, when we received a dividend we should :
Dr Cash (SoFP)
& Cr investment income (P&L)But in the above post we are DEDUCTING dividend from investment in associate , i.e, we are :
Dr cash (SOFP)
& Cr investment in associate (SoFP)???
Thank you in advanceIn the long way round, we shall debit investment in associate and then credit it with the dividend.
So, in working W5A, by debiting with our share of the net-of-dividend-retained post acquisition profits, does that not achieve the same result?
Think about that and, as ever, if you’re still not happy, post again!
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