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Hello Sir,
how are you doing,
In this question why the dividends is ignored and has no effect on the answer?,
Thanks,
Ulysses Co owns 25% of Grant Co, which it purchased on 1 May 20X8 for $5 million. At that date Grant Co had
retained earnings of $7.4 million. At the year-end date of 31 October 20X8 Grant Co had retained earnings of
$8.5 million after paying out a dividend of $1 million. On 30 September 20X8 Ulysses Co sold $600,000 of
goods to Grant Co, on which it made 30% profit. Grant Co had not resold these goods by 31 October.At what amount will Ulysses Co record its investment in Grant Co in its consolidated statement of financial
position at 31 October 20X8?A $5,000,000
B $5,275,000
C $5,230,000
D $4,855,000The answer is
$5,230,000
$’000
Cost of investment 5,000
Share of post-acquisition profit (8,500 – 7,400) × 25% 275
PURP (600 × 30% × 25%) (45)
5,230Hi,
As we are using the retained earnings figure to calculate the post-acquisition profits of the associate, the dividend figure has already been deducted from the retained earning at the reporting date. We therefore do not need to deduct it from the investment in associate figure as it has already been deducted.
The other alternative would be to add back the dividend to the year end retained earnings figure to get the movement in profits and then deduct our share of the dividend.
Thanks
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