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According to IAS 18, Dividends Income should be recognised when ‘shareholder’s right to income is established’. What does this mean? does it mean that it should be recognised when dividends are DECLARED by investee? Or an investor can himself/herself recognise it when he/she thinks the right is established?
Also, in the BPP Kit Consolidation MTQ # 19.2 (Black & Bury), they’ve recorded “Dividend Income from Bury ($7,000)” in Black’s (Parent) SOPL and a consequent receivable is included in Black’s Receivables.
But there is no entry in Bury’s (Subsidiary) SFP, neither Retained Earnings are adjusted nor there’s any payable to Black in SFP.
In short, Parent has recorded both income as well as receivable, but Subsidiary has not recorded it at all (at least in the question). I’m confused as to why it is done this way and how to deal with this problem. Kindly help me with this question.Thanks in advance.
Dividend income is recorded then the dividend has been declared – it is not up to the recipient to decide.
With regard to the question in the BPP Kit that you refer to, I am away from home until Thursday and do not have the Kit with me. I cannot therefore be certain until I look at it on Thursday, but surely the retained earnings of Bury will already be after any dividends they have paid?
If it is not clear then please ak again on Thursday because then I will be able to check myself.
I have rechecked the question and found out a point that i have missed. There is an item “Dividend” in Current Liabilities with $10,000 amount. Here’s how they’ve treated it in CSFP.
Current Assets:
Trade & Dividends Receivable ($14,640-$7,000 + $6,280)Current Liabilities:
Trade Payables
Dividends ($20,000 + $10,000×30%)Dividend Income from Bury in SOPL was $7,000.
NCI is 30% and the $20,000 are Parent’s Dividends. Am i right in assuming that by excluding the 70% they’ve cancelled the amount of $7,000 receivable?Also, as you said that the Retained Earnings of Bury have already excluded this dividend payable, should i assume the same if an exam question comes like this?
I’m about to attempt FFA in a few days.Yes, you are correct, and yes, retained earnings are always after dividends payable.
(Inter-company dividends are very unlikely to be asked about in Paper F3 – they are really a Paper F7 topic)
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