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Do we take Associate’s Profit after tax or Retained earnings to the consol statement? Does Associate’s dividends paid to Parent affect any accounts?
• the group’s share of the associate’s results (profit after tax) should be included immediately before total profit before tax
(IAS 1).Hi Ivan, thank you for your reply. So as referred from you, does that mean I have to include 30% of $10 million instead of $4 million (10-6) for the example below?
On 1 October 2013, Penketh also acquired 30% of Ventor’s equity shares. Ventor’s profit after tax for the year ended 31 March 2014 was $10 million and during March 2014 Ventor paid a dividend of $6 million. Penketh uses equity accounting in its consolidated financial statements for its investment in Ventor.
Penketh’s year end is 31 March 2014. Do I need to time-apportion?
you have to include 30% of 4000 which comes after 10 -6. the reason is because these dividends were paid. this is how they have done in bpp text book page 186. you also have to count the time factor and divide that 4000 by 2 since the acquization of associate was mid year. at the end P share should be 30% of 2000 which comes as 600
I think it should be 30% of 6 months’ worth of the year’s profit after tax (and before dividends)
In your example, it should be 30% x 5,000 = 1,500
that’s the figure that should appear in the statement of profit and loss
If you’re looking at the balance sheet, its as Mike says in his working 5aplz follow this thread. i raised the same question to Mike and he said the dividends were meant to be deducted.
https://opentuition.com/topic/ias-28-dividends-paid-by-associate/
just read the question – sorry, my previous post thought that the associate was acquired part way through the year. In fact, it is a ful year for the associate. so to include within the consolidated income statement is our share (i can hear Mikes voice as I type this) of this years associate adjusted time appotioned profit after tax.
So if I’ve understood mike correctly, its our 30% of $10000 ie $3000.
Lets hope mike sees this and clears up any confusion. In fact Im going to post the question on the ask the tutor page to see if hes still answering questions
I posted …. and here’s his reponse-
Hey Biggles! Long time no see!
Yes, just remember the mantra for working W5A Investment in Associate. That’s cost of investment + our share of post-acquisition retained earnings – any impairment since acquisition
However, in the exam, the question was about a consolidated Profit or Loss statement so we’re looking at working W5B Share of Associate’s this year’s profits and the mantra there is :-
Our share of
this year’s
associate
adjusted
time-apportioned
profit after tax.Now, in the exam, there was an annual profit of $10,000 after tax from which a dividend of $6,000 had been paid.
Look at the lines above!
“Our share of the associate’s profit after tax” – ie before the dividend deduction. That’s the figure for the statement of profit or loss.
For the balance sheet, yes, we need to account for the dividend PAID / PROPOSED by the associate and deduct it in arriving at retained earnings and add it to the parent’s retained earnings for the calculation of working W3 Consolidated Retained EarningsBut for the consolidated statement of Profit or Loss, we take our share of the pre-dividend profit after tax
Does that answer it?
That seems clear enough to me
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