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Hi,
It would be helpful if you can advise about the impact on Parents’ Consolidated SOFP and Consolidated SOCI.
Parent. Co > Subsidiary. Co > Associate. Co
Parent. Co helds 100% of Subsidiary. Co and Subsidiary. Co held 33.2% of Associate. Co.
At the end of financial year, Associate. Co has a profit after tax of $6.7mil and declared dividend of $6.6mil.
Subsidiary. Co will receive 33.2% of the dividend.
1. How should Subsidiary. Co treat this transaction and how to account the investment cost in associate in B/S.
2. How would the Consolidated SOFP and Consolidated SOCI treat the dividend and effect on the investment in associate ?
All 3 companies has the same financial year end.
Thank you.
The cost to the Group of the acquisition of the investment in the Associate is the same as the cost to the Subsidiary because the sunsidiary is wholly owned.
So we have the top line of working W5(A) “Cost of acquisition”
Next ine in the working is “Share of post-acq retained” and in your example that’s 33.2% of $100,000 so long as the profit of $6.7 this year is the entire post-acquisition profits ie we acquired the Associate on the first day of the accounting year
The final line in the working is “Less any impairment (in the value of our investment)” and there’s no suggestion in your post of any such impairment
Question 1, in its own separate accounts the subsidiary would record the receivable of the dividend as investment income and increase the figure Investment in Associate by the same amount
Question 2, in the group consolidated figures the Investment in Associate would be the same as shown in the subsidiary’s own accounts (as explained in the previous paragraph) on the statement of financial position
In the consolidated statement of profit or loss we would show 33.2% of this year’s Associate adjusted, time apportioned, profit after tax and this would be shown as a pre-tax income
Ok?
Dear MikeLittle,
Firstly sorry for the late reply.
Secondly thank you very much for the clarification. I understand it now.
Thank you very much once again.
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