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(iv) Viagem’s investment income is a dividend received from its investment in a 40%
owned associate which it has held for several years. The underlying earnings for the
associate for the year ended 30 September 2012 were $2 million.W5B Group Share of Associate Profit $800 ( I have understood this)
but investment income 500 given in the statement of P/L of Viagem disappears in CS of P/L; this is what has confused me; pls help sir.Vishal, that’s total nonsense and a very good reason why you should NOT try to assist in answering questions addressed to the tutor!
Amit, in the same ay that we ignore dividends received from subsidiaries when preparing the consolidated statement of profit or loss, so too do we ignore dividends received from associates.
The reason for this “disappearance” is that, when an entity declares / pays a dividend, this is an appropriation of the year’s profits after tax.
But, in consolidating, we take in the whole of a subsidiary’s profit after tax, so to include in consolidation a dividend from a subsidiary would be to double count
In the situation of an associate, we don’t consolidate the whole of the associate’s profit after tax. But we DO consolidate our share of that associate’s profit after tax and it’s out of that profit after tax that the associate is declaring / paying the dividend to its investors (including the parent)
Is that better?
Incidentally, I’m sure that I recorded a worked answer to Viagem in the F7 Revision notes. Could you not find it?
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