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Suppose S Co, a 60% subsidiary of P Co, pays a dividend of $1,000 on the last day of its accounting period. Its total reserves before paying the dividend stood at $5,000.
$400 of the dividend is paid to non-controlling shareholders. The cash leaves the group and will not appear anywhere in the consolidated statement of financial position.
The parent company receives $600 of the dividend, debiting cash and crediting profit or loss.
so when preparing Cons St. of FP
what adjustment need to be donecash need not be adjusted as it will be take total of P and S
but what abt the income which parent co. has recognised in his P/l st.
do we need to remove it from group retained profit…….and add back that profit to retained earnings of subsidiary at reporting date?Bpp book says
(b) The parent company receives $600 of the dividend, debiting cash and crediting profit or loss. This will be cancelled on consolidation.
does that mean we will reduct it from bank balance of parent company and also reduct the group retained earnings while making the cons. st. of financial position
Hi,
The book is correct and it means that it is replaced by the revenue and costs of the subsidiary as this is where the dividend was originally taken from. If we do not remove it then it would be included twice within the group accounts. Once as dividend income and then within the consolidated profits of the subsidiary.
You do not need to do any further adjustments.
Thanks
so when subsidiary paid the dividend……..while doing consolidated st. of financial position
we reduce investment income from group retained earnings
and also the dividend amount reduced from cash balance as we are not showing any incomeand the post acq profit of subsidiary will be shown at retained earning after reducting the dividend amount
am i right?
Hi,
When the dividend is declared we record it DR Dividend receivable CR Investment income, and then when it is paid we DR Bank CR Dividend receivable. You do not then need to make any adjustments on consolidation as there is not intra-group balance as the cash has been received.
Thanks
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