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Dear tutors,
My question is – A $450 final dividend was declared by the directors of the Subsidiary Ltd on 31 Dec 20X1 to be paid on 31 Jan 20X2 and recorded in the books, however, Parent Ltd had not accounted for the dividends receivables from Subsidiary Ltd.
May I know what is the impact on consolidated statement of financial position as at 31 Dec 20X1. Is there any impact on retained earning and NCI in the Balance sheet?
Additional information:
CL-Dividend payable in Parent accounts is $30,000
CL-Dividend payable in Subsidiary accounts is $15,000
Parent owns 80% of subsidiary.What I understand so far for the consolidated account.
Dividend payable 30,000+15,000-(450*0.80)=30,000+15,000+360=44640
Any helps will be greatly appreciated!
Parent has to record the dividend receivable from the subsidiary so, in parent’s books, Dr Receivable (80% x 450) 360 and Cr Retained Earnings
Now we can cancel the 360 receivable in parent against 360 of the 450 payable in the subsidiary leaving just 90 liability as a dividend payable in the subsidiary
Now what’s confusing me are the other figures in your question! What’s this $15,000 dividend payable in the subsidiary’s current liabilities?
Answer that one for me and I’ll continue with my answer!
Hi MikeLitte,
Firstly, thank you so much for the quick response.
I have a few questions:
Is the credited retained earnings of 360 equivalent to investment income to the Parent?
And why should we add the 360(investment income=dividends) into our retained earning, instead do we need to eliminate investment income when producing consolidated statements?There is no additional information on the 15,000 dividend payable in the subsidiary’s current liability. So sorry! ;( It is given as 15,000 dividend payable as at 31 Dec 20X1.
Once again, thank you so much for the help.
“Is the credited retained earnings of 360 equivalent to investment income to the Parent?”?
Yes
“And why should we add the 360(investment income=dividends) into our retained earning, instead do we need to eliminate investment income when producing consolidated statements?”
I HAVE eliminated the intra-group dividend here”Now we can cancel the 360 receivable in parent against 360 of the 450 payable in the subsidiary leaving just 90 liability as a dividend payable in the subsidiary”
As for the consolidated statement of profit or loss, the 360 receivable from the subsidiary is excluded / ignored and instead the statement of profit or loss includes the subsidiary figures from Revenue down to Profit after tax, so the figure out of which the subsidiary is paying its dividend (profit after tax) IS included within the consolidation
Clear?
Hi tutor,
I am sorry! I still does not get this part.
As for the consolidated statement of profit or loss, the 360 receivable from the subsidiary is excluded / ignored and instead the statement of profit or loss includes the subsidiary figures from Revenue down to Profit after tax, so the figure out of which the subsidiary is paying its dividend (profit after tax) IS included within the consolidation
When we consolidate, we add in all the subsidiary’s figures from their own statement of profit or loss from revenue right down to profit after tax.
The dividend declared by the subsidiary is declared out of that year’s profit after tax. But we’ve included that profit after tax within the consolidation
So that’s why we ignore the income (dividend from subsidiary) from the parent’s profit or loss
Hi tutor,
Thank you for the patient response. I have one last question – when you wrote Cr retained earning by 360. Am I suppose to add 360 to our retained account, since we Cr RE?
Yes, absolutely. Technically it would have been better if I had said “in the parent’s records Dr Receivables and Cr Investment Income” That has the effect of increasing the parent’s retained earnings figure.
I thought I could short-cut the explanation, but clearly I was wrong 🙁
Better?
Dear Tutor,
Your explanation was marvellous. It is me, the student, who is lacking. Thank you so much! May you have a great day ahead! 🙂
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