associates

Hi, When the associate pays the dividend it will record it as any other dividend in its accounts, so DR Retained Earnings CR Dividend Payable. When we equity account for the associate, we DR Share of profit of associate CR Investment in associate. Thanks

So we remove the investment income( dividend received) from the consolidated figures? As for the associate's retained earnings, we deduct any dividend paid and then calculate our share of that retained earnings? Am I correct? Thanks.

Hi, Yes, any dividend received is removed from the financial statements as we are replacing it with our share of the associates profit for the year using equity accounting. Yes, any dividend that has been paid is a distribution of retained earnings and hence we only record our share of what is left. Thanks

Hello, Thank you for your answer. In your previous reply, you've mentioned "we equity account for the associate, we DR Share of profit of associate CR Investment in associate". Could you re-explain this part? Thanks.

Hi, The debit is recording our share of profits in profit and loss, the credit is recording it on the SFP as part of our investment in associate. Thanks

Part of the investment in the associate is an asset and therefore should be debit. How can we credit it on the SFP?

Hi, Yes, the investment is an asset but if the associate is paying a dividend then the investment is reduced and hence we credit it. Thanks

Hello Chris, Need your help to tackle a question. Burridge bought 30% of Allen on 1 July 20X4. Allen’s statement of profit or loss for the year shows a profit of $400,000. Allen paid a dividend to Burridge of $50,000 on 1 December. At the year end, the investment in Allen was judged to have been impaired by $10,000. What will be shown under ‘Share of profit from associate’ in the consolidated statement of profit or loss for the year ended 31 December 20X4? A Nil B $50,000 C $60,000 D $110,000 1. The answer is B. 2. The working in the book is a follows: 30% × $200,000 ($400,000 × 6/12) – $10,000 = $50,000. 3. My issue is that why the dividend of $50,000 has not been deducted from the post acquisition profit($200,000)? - Above you've said that,"any dividend that has been paid is a distribution of retained earnings and hence we only record our share of what is left."

Hi, You've got to be careful at whether you're looking at the SPL or SFP. The dividend adjustment is to the investment in associate for dividends paid by the associate is in the SFP. In the SPL we just take the share of profit for the year, and deduct the impairment. There is no adjustment to be made for the dividend payment made by the associate. Thanks