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Hello Sir,
In the individual SOPL
Investment income $
Laurel 500000
Rakewood 400000Note 4:
Laurel’s investment income consists of:
– Its share of dividend of $500000 paid by Rakewood in August 20X6
– A dividend of $200000 received from Artic Co, a 25% owned associate which it has held for several years. The profit after tax of Artic Co for the year ended 30 September 20X6 was $2.4 million.The answer is 400*9/12
I understand that the dividend from the subsidiary was eliminated and investment income for subsidiary was time apportioned, but should the $200000 not have been eliminated since the share of profit in associate will be appearing as a separate item and that would be double counting? or it is that the dividend from associate was not included in the investment income in the first place, but in that case why would the note say that Laurel’s investment income consists of those two things?
Would be grateful if you help clarify on this. Thank you very much.
I had the same issue while answering the question. But, since the Investment Income showed only $500,000, I assumed that the entry of $200,000 has not yet been created and made the adjustments accordingly. And, as far as I can remember, the answer key had the same approach.
Hi,
The share of profit of associate is exactly that, i.e. our 25% share of the pro-rated profits (25% x $2.4 m x 9/12). The only deduction we make to the line item is any PURP adjustment or impairment as these are both profit impacting transactions.
The payment of the dividend is not profit impacting, it is merely a redistribution of the net assets of the business. The entry we make for this is to reduce the investment in associate on the face of the group SFP.
Thanks
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