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Received? In parent’s records, Dr Receivable Cr Retained Earnings …. in Subsidiary’s records Dr Retained Earnings and Cr Liabilities
Then cancel the parent’s receivable against the same amount included within the subsidiary’s payables
In the Income Statement, exclude from the consolidation the dividend received / receivable from the subsidiary ( or associate )
Hi Mike,
So upon consolidation, we will Dr. SOCI by amount of dividend received from subsidiary. What is the Credit entry?
Thank you
Hello
Could you please tell me how to treat dividend in CRE workings as well as in the FS in these e.gs below in case any of them is a wholly owned subsidiary or a partly owned subsidiary ?
E.g 1 extract : Dividend declared and paid.
P has acquired 120 000 ordinary shares of S on 1.1.2008 for $200,000. The profit and loss account of S on that date was $40,000. On 10.1.2008 S declared and paid an ordinary dividend of 10% for 2007. SoFP is at 31.12.2009.( No new issue of shares made since date of acquisition)
E.g 2 extract :
H acquired 300,000 ordinary shares of S on 1.1.2011 for $360,000 when the balances in S’s were : General Reserve $40,000 n P&L $ 30,000. On 15.1.2012, S declared and paid an 5.6% ordinary dividend. H has credited its profit n loss with its share of dividends received from S on 15.1.2011. ( In the SoFP, Investment is included as follows: Investment in 300,000 ordinary shares at cost $360,000 and date of SoFP is as at 31.12.2013 )
Eg 1 retained earnings should be reduced as at date of acquisition by the amount of the full dividend.
In practice, the parent acquiring the shares just 10 days before the dividend payment will have acquired them “ex-div” that is, the sellers of the shares will be entitled to that dividend and the buying parent company, although it actually received the dividend, would be required to pay it back so that the previous owners get the benefit of that dividend
In eg 2, the same situation applies. The examiner in neither F7 nor P2 is likely to do this to you.
In addition, the dividend for the previous year end figures is not payable until the shareholders approve it in the Annual General Meeting so a 10 or 12 day period between year end and dividend payment is unrealistic.
No company can give 21 days notice of an AGM for the AGM to be held within such a short time period (there are exceptions but unlikely in an ACCA exam)
To call an AGM the company will have to circulate the financial statements which themselves need to be completed, audited, printed, proof-read, corrected, mailed ……
It’s not going to happen!
In general, a dividend paid in respect of the pre-acquisition YEAR should be deducted from reserves in arriving at RETAINED earnings as at date of acquisition
An interim dividend payable in, say, August when acquisition date was, say, 31 March this year is now NOT time apportioned.
But in practice, the date upon which the shares “go ex-div” will determine the treatment. If they go ex-div BEFORE the parent acquires contro, then the interim dividend would be deducted from retained earnings as at date of acquisition, even though the parent ACTUALLY RECEIVES the interim dividend. As stated above, in that ex-div situation, the parent would be required to repay the dividend received
Ok?
Ok for e.g 1.
For e.g 2, can the parent credit the dividend receivable to p&l?
Hi, I believe that one of your dates is incorrect. And I misread BOTH 15 Januarys to be 2011. If, in eg 2, the correct date is 2011, then my original post is still valid
If, however, the correct date is 15 January, 2012, then of course the parent will credit the dividend received from the subsidiary as investment income IN ITS OWN INCOME STATEMENT.
But, on consolidation, we ignore any intra-group dividends in the statement of income. But for the consolidated statement of financial position, any PROPOSED dividends are accounted for by deducting from the retained earnings of the paying company and the appropriate part of the subsidiary dividend payable to the parent is included within the parent’s retained earnings
All of that is explained in the recorded lectures
Ok?
Dividend declared and paid is deducted from pre profit only?
What entries are made in the situation where the question says : H has not yet taken credit for the dividend proposed by S?
Dividends declared and paid are deducted from after tax profits and are shown as a deduction within statement of changes in equity
H credits statement of income and debits receivables in its own records.
On consolidation, the receivable is cancelled against the SAME amount in the subsidiary’s payables
Ok?
Hello,
please can u explain how to treat dividend declared and not paid in consolidated accounts and dividend declared and not claimed. Thank you.
The second part of your question, dividend declared and not claimed, doesn’t make much sense (sorry) in the context of an ACCA exam.
The shareholder isn’t required to “claim” their share of the dividend – it is sent to them! They have no choice, it will be sent by the company.
Dividends declared and not paid? In each of the group companies, the double entry will be to debit retained earnings (in the statement of changes in equity) and credit obligations (on the balance sheet)
Where the dividend (in full or in part) is payable to another company within the group, the receiving company in its own records will debit receivables (on the balance sheet) and credit investment income (in the statement of profit or loss)
On consolidation, we need to eliminate the element of the dividend that is paid / received within the group
So, on the balance sheet, reduce receivables by the amount of dividend receivable from another company in the group and reduce obligations by the same amount
In the statement of profit or loss, reduce investment income by the amount of dividend shown as receivable – simply ignore it, do not include it as consolidated income
Ok?
Hello Sir, Could you explain me how to handle dividend inthe following problem.
The following figures relate to the draft profit or loss accounts of Courage Ltd and
Brains Ltd. for the period ending 31 December, 2016:Courage Ltd Brains Ltd.
£’000 £’000
Turnover 3,000 900
Cost of Sales (1,700) (600)
Gross profit 1,300 300
Operating costs (900) (197)
Operating profit 400 103
Loss on sale (50) (10)
of fixed assets
Dividends from 8 2
quoted companies
Profit (BIT) 358 95
Interest 2 (3)
receivable/payable
Profit before tax 360 92
Tax (160) (40)
Profit for the period 200 52
Retained profits b/f 100 25
Proposed dividends (20) (4)
Retained profits c/f 280 73Other information:
– Courage Ltd. had acquired 60% of Brains Ltd. ordinary shares and has a controlling interest.
– In December, 2016, Brains Ltd. invoiced goods to Courage Ltd. £10,000 making £2.000 profit and these are included in the stocks of Courage Ltd.Required:
Prepare the consolidated profit and loss account for Courage Ltd. for year ended 31 December, 2016.Hello Sir,
Should I eliminate dividend paid or received either by the parent or the subsidiary to a company outside of the group.
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