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Hi Mike,
This is an example from the book:
P acquired 30% of the equity shares of T some years ago for $300,000. At that date T had retained earnings of $ 246,000. At the year end date 31 Dec 20X4 T has retained earnings of $457,000 and has paid the dividend during the year of $100,000. P considers that its investment in T has suffered an impairment during the year of $50,000.
Investment in associate in cons.SFP of P at 31 Dec 20X4?
This is the answer the book gives:
Cost of Investment 300,000
Share of post-acq RE
(457,000-246,000)*30% 63,300
Impairment (50,000)
Total 313,300
My question is why in this case we didn’t deduct the dividend of 100,000 from RE like this
(457,000-246,000-100,000)*30%
Thank you a lot!“At the year end date 31 Dec 20X4 T has retained earnings of $457,000 and has paid the dividend during the year of $100,000.”
I suppose a lot depends on your understanding of the word ‘retained’
To retain something means that you keep it and, in the context of entities and their retained earnings, this means their earnings that are not distributed by way of dividends
So a figure for retained earnings is stated AFTER the dividend appropriation has been removed
Thus, that figure of $457,000 has been arrived at after the deduction of the $100,000 dividend
OK?
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