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Hi,
Please find below the question;
Plow Co purchased 3,500 of the 10,000 $1 equity shares of Styre Co on 1 August 20X4 for $6.50 per share.
Styre Co’s profit after tax for the year ended 31 July 20X5 was $7,500. Styre Co paid a dividend of $0.50 per
share on 31 December 20X4.
What is the carrying amount of the investment in Styre Co in the consolidated statement of financial
position of Plow Co as at 31 July 20X5?I dont agree with the solution.
The solution is as below;
Cost 22,750
P’s share of profit 2,625 (.35*7,500)
Dividend received (1,750) (.5*3,500)
Answer 23,625Why is dividend substracted from the carrying amount of the investment? Dividend received is :
Dr Bank
Cr Dividend ReceivedHow does this affect investment?
Hi,
The adjustment that you are suggesting is how we would account for it in the individual accounts, but here we are using equity accounting and the dividend received is eliminated.
The dividend received is therefore removed from profit or loss (DR) and the other side of the entry is to reduce the investment in associate (CR).
Thanks
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