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Hello Mr Chris,
In the following question the divindends were declared during the year but were received early after the year end so why we have to deduct it from associate value even though the dividends were only declared during the year
but not received .Thanks,
Q
Alpha Co acquired 20% of Beta Co’s 500,000 ordinary shares for $4 per share
on 1 July 20X6.
Beta Co’s profit after tax for the year ended 31 December 20X6 and 31 December
20X7 was $100,000 and $250,000 respectively. Beta Co also declared a dividend of
$20,000 for ordinary shareholders on 15 December 20X7. The cheque for dividend
was actually received and deposited by Alpha Co on 15 January 20X8.
Assuming that Beta Co is an associate of Alpha Co, calculate the amount to be
included in the consolidated financial statements as at 31 December 20X7.
A) $456,000
B) $466,000
C) $460,000
D) $464,000Answer is A
Hi,
Dividends are recorded on a declared basis as that is when the obligation to pay arises. The question therefore correctly deducts the dividend in the current year as that is when it is paid.
Thanks
hey
Cost (500,000 x 20% x $4) $400,000
Share of profit for 20X7 ($100,000 x 6 /12 x 20%) $10,000
Share of profit for 20X8 ($250,000 x 20%) $50,000
Less: Dividend received ($20,000 x 20%) ($4,000)
Carrying value of Beta Co $456,000
my doubt in this question is why is 31 December 20X6 profit after tax taken into account in Dec 20X7wouldn’t it have been calculated in last year’s consolidated stmnt of financial positionHi,
We are looking at the value in the SFP, so at a point in time. This means that at this point in time we would have had influence over the profit from this year and the previous year when we acquired it too, hence accumulating the profits from each year.
Don’t get confused with the SPL which is where we look at the profits for that particular year only, not an accumulation of them.
Thanks
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