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Purchase of associate

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Purchase of associate

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by Stephen Widberg.
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  • June 25, 2021 at 7:01 am #626258
    joynow
    • Topics: 42
    • Replies: 38
    • ☆☆

    Hi, Sir. Past year Sept 2018 Q4 iii)

    Note ii) Daveed purchased a 25% interest in an associate for cash. The associate reported a profit after tax of $16m and paid a dividend of $4m out of these profits in the year end.

    Answer: Purchase of associate

    Balance (-) profit $16m x 25% (+) dividend received $4m x 25%= $23m -$4m +$1m = $20m ( cost of acquisition)

    My question is why the profit has to be minus out and add up the dividend received?

    June 25, 2021 at 8:36 am #626274
    Stephen Widberg
    Moderator
    • Topics: 10
    • Replies: 2531
    • ☆☆☆☆☆

    He seems to like this because it comes up often

    STARTING FIGURE + PROFIT – DIVIDEND = ENDING FIGURE (the accounting equation)

    STARTING FIGURE = balancing figure in the equation

    It does work if you write it as an equation

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