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The investment in Amery Co represents 30% of its voting share capital and Dargent Co uses equity accounting to account for this investment. Amery Co’s profit for the year ended 31 March 20X6 was $6m and Amery Co paid total dividends during the year ended 31 March 20X6 of $2m. Dargent Co has recorded its share of the dividend received from Amery Co in investment income (and cash).
Sir here in this adjustment ,
COI 4500 (given)
Add : P share of post acq profit of A co (PAT of A co x holding %), so 6000 x 30% = 1800
Less : Share of divids from A co (2000 x 30%) = (600)Hence carrying value of investment in associate = 5700
Is the above correct?
Secondly in Group RE / CR, we add P share of post acq profit of A co , so would we add 1800?
Hi,
Yes, the carrying amount of the investment is correct. Our share of the dividend received from the associate is a deduction to the carrying value.
You are also correct with the treatment in the group statement of profit or loss.
Thanks
Sir if in consolidated P& L we have to show associate share of profit then we will show
Post acq profit of A co (i.e PAT x holding %) = 6000 x 30% = 1800
OR
Post acq profit of A co (i.e PAT x holding %) = 6000 x 30% = 1800
Less : Share of divids from A co (2000 x 30%) = (600)Hence associate share of profit = 1200
But sir in a similar LAurel (D16) question, the question says that Laurel’s investment income consist of
a dividend of 200000 received from Artic , 25% owned associate which it has held for several years. PAT of Artic for year ended 20 sept 20X6 was 2.4m
Sir, here in consolidated P& L we should show associate share of profit in this way
Post acq profit of A co (i.e PAT x holding %) = 2400 x 25% = 600
Less : Share of divids from A co = (200)Hence associate share of profit = 400
But examiner have shown as follwing
Post acq profit of A co (i.e PAT x holding %) = 2400 x 25% = 600
Hence associate share of profit = 600
Why is that so Sir?
@maxpopper said:
Sir if in consolidated P& L we have to show associate share of profit then we will showPost acq profit of A co (i.e PAT x holding %) = 6000 x 30% = 1800
OR
Post acq profit of A co (i.e PAT x holding %) = 6000 x 30% = 1800
Less : Share of divids from A co (2000 x 30%) = (600)Hence associate share of profit = 1200
You would show the 1,800. The share of profit of associate is shown as P’s%x(A’s PFY – PUP) – impairment for the year. The dividend is deducted from the carrying value of the investment in associate on the SFP.
@maxpopper said:
But sir in a similar LAurel (D16) question, the question says that Laurel’s investment income consist ofa dividend of 200000 received from Artic , 25% owned associate which it has held for several years. PAT of Artic for year ended 20 sept 20X6 was 2.4m
Sir, here in consolidated P& L we should show associate share of profit in this way
Post acq profit of A co (i.e PAT x holding %) = 2400 x 25% = 600
Less : Share of divids from A co = (200)Hence associate share of profit = 400
But examiner have shown as follwing
Post acq profit of A co (i.e PAT x holding %) = 2400 x 25% = 600
Hence associate share of profit = 600
Why is that so Sir?
So we would show the 600 on the face of the SPL and on the SFP the 600 would be added to the investment in associate and the 200 would be deducted. It might e pushing it a bit far but the journal entry for the dividend is to remove the investment income (DR Investment income – P’s%) and reduce the investment in associate by the same amount (CR Investment in associate).
Sorry for any previous confusion.
Thanks
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