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“Do we have to add this cash amount ….?”
Why would we?
The entry is (on receipt of the dividend (say) 8 weeks before the year end:
Dr Cash
Cr Investment Incomeie it’s already included within the cash figure …… UNLESS the associate has just paid and it’s not yet been received ….. but that’s a different question altogether!
I need to ask point four…
Panketh has associate of which it owns 30%. At march sales was made to it 15 mil but item is still at panketh inventory.
In examiner answers he or she has deducted only 15×30%x25/125.
However I am of the view whole amount at cost 15*100/125 =12 should have been deducted because this amount must have been included at sock and must have been added in closing stock while counting.
Could tutor shed some light and walk through me that why URP is only added in cost of sales….
I will appreciate to have quick answer as exam near :)….
Thanks in advance.
Sorry to bug again but for clarification….
Examiner has
Sales to Ventor (15,000 x 30% x 25/125). 900 added in cost of sales as URP…..
But 12mil would have been good as working to add in cost of sales as I believe that it has been added in closing stock erroneously…..
Mike kindly walkthrough me…..
Thanks
It doesn’t matter where the stock is held – it is still to be included.
However, it should be included at the true cost without the pup so $12,000 is already included. But the inventory has been invoiced at $15,000 and included at that figure so we need to adjust for $3,000 pup.
Now, you say that Ventor is an associate. In that case, deduct $3,000 from Ventor’s retained earnings. That reduces the post-acq retained in the associate and that has a direct affect on both the consolidated profit or loss account (our share of profit after tax falls) and the consolidated statement of financial position (the value of our investment in the associate falls)
Is that ok for you?
Sir when the parent sells to the sub we add the unrealized profit to the cos.just in case they ask sofp,what will be the adjustment in the balance sheet
why is the cash consideration of goodwill for share exchange deducted from financial asset?i normally add it with share capital n share premium of parent but this question of dec 2013 has made me so confused
Noob, isn’t it because the element has been included within financial assets whereas the correct treatment is to have debited it to the “Cost of acquisition of subsidiary account”
That, in turn, on consolidation becomes the top line in the goodwill working W2 “Cost of acquisition”
Does that answer it for you?
A doubt. How do we get 5000 as cost in associate ac? Is it taken from the investment income given in the question?
Why do you think the answer is showing $5,000 as cost of investment in associate?
Hi Mike,
Regarding this question why in the SPLOCI in the ine of investment income:other we deduct from the 5k the proportional part of the dividen paid by the associate?
As per question sorry:
Penketh Subsidiary
Investment income (note (iii)) 5,000 1,600Note iii: On 1 October 2013, Penketh also acquired 30% of Ventor’s equity shares. Ventor’s profit after tax for the year ended 31 March 2014 was $10 million and during March 2014 Ventor paid a dividend of $6 million. Penketh uses equity accounting in its consolidated financial statements for its investment in Ventor.
Answer:
Investment income: Other ((5,000 – 1,800 dividend from associate) + (1,600 x 6/12)) 4,000
In the consolidated reserves, we take the investor’s share of the associate’s profits after tax (but before dividend deduction)
Therefore we have taken into the consolidated reserves our (pre-dividend) share of associate’s profits
Ok?
@mikelittle said:
No, the 2m gain is a affair value adjustment as at date of acquisition and is part of the FV of SNA @DOAThe 2m is therefore notionally added to the land as at date of acquisition
The 1m is a post acquisition increase and should be shown as part of the calculation in working W3 (H’s own + H’s share of S post acq retained …..)
Is that better?
Mike, I really do not get this, how is revaluation gain of 2m + 1m post acq (Land) for the subsidiary become 3m-2m gain/loss and to add to it why is it reduced from the overall Penketh loss on revaluation. i.e solution answer says loss on revaluation of land ( 2200 – (3000-2000) gain for sphere) ? really confusing
the only case here i have to pay attention if its declared before end of reporting date or after end of reporting date it is like that
Before end of reporting period
Retained earning in associate-20000
dividend payable-5000
15 000*30%=4500
5000*30%=1500INvestment–10000(let us assume )
4500dividend receivable-1500
retained earnings-1500+4500
After end of reporting period
Retained earning in associate 20000
dividend pay -500020000*30%=6000
5000*30%=1500
Investment-10000
6000
(1500)dividend receivable-1500
GRE-6000(dividend alraed here)
“if its declared before end of reporting date or after end of reporting date”
It doesn’t matter if the dividend declaration is before or after the reporting date
The investor will include within the consolidation “our share of the associate’s profit after tax” and that figure doesn’t change whether or not a dividend is declared
Incidentally, this line “retained earnings-1500+4500” and others like it are totally confusing!
Does the line add across to a figure of $3,000 or $6,000 because, in my simple mind, when I aggregate -1,500 with + 4,500 I arrive at $3,000 but I’m not sure that that is what you intended
OK?
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