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