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Dividend received from Associate

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Dividend received from Associate

  • This topic has 4 replies, 2 voices, and was last updated 3 years ago by Hamsi.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • March 1, 2022 at 6:17 pm #649584
    Hamsi
    Participant
    • Topics: 5
    • Replies: 10
    • ☆

    Hi sir,
    I came across this question while doing ACCA website CBE revision papers

    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.

    Calculate the carrying amount of the investment in Styre Co in the consolidated statement of financial position of Plow Co as at 31 July 20X5 (to the nearest whole $).

    Could you kindly explain me how they are calculating post-acquisition profit and dividend (shouldn’t we calculate it to 35%)?

    The correct answer is $23,625

    Cost of investment (3,500 x $6.50)= 22,750

    Share of post-acquisition profit (35% x $7,000)= 2,625

    less dividend received (3,500 x $0.50)= (1,750)

    23,625

    March 2, 2022 at 5:32 pm #649663
    kk-@
    Member
    • Topics: 2
    • Replies: 7
    • ☆

    As we acquired only 35% (3500/10000*100) , we will recieve only 35% profit after tax
    So post acquisution profit = 7000
    Our share = 7000*35% = 2625

    For dividend , assosiate is giving dividend 0.50 per shares
    We hold 3500 shares
    So we will recieve divudend of 1750(3500*0.50)

    March 2, 2022 at 6:41 pm #649674
    Hamsi
    Participant
    • Topics: 5
    • Replies: 10
    • ☆

    Thank you for this explanation.
    I understood the dividend part.
    But the profit for the year is $7500, how we are arriving to the figure of post acquisition $7000.
    Could you kindly explain me that part please?

    March 3, 2022 at 10:17 am #649717
    kk-@
    Member
    • Topics: 2
    • Replies: 7
    • ☆

    Hello
    That was mistake I wrote 7000
    Profit after tax is 7500
    And 35% of it = 2625

    That is printing mistake , it is 7500 not 7000

    March 3, 2022 at 12:07 pm #649721
    Hamsi
    Participant
    • Topics: 5
    • Replies: 10
    • ☆

    Thank you so much sir.
    I was confused by the figures misprinted in their given answer without checking the final output.
    It was really helpful.

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