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Unformatted text preview: rnings of the investee
arising after the date of acquisition.
• Distributions e.g. dividends received in excess of
post-acq. profits are regarded as a recovery/return
of investment in subsidiary and thus are
recognised as a reduction of the cost of the
35 Elimination of Intra-group Dividends from
• The dividend paid by the subsidiary to holding company out
of the profits in existence at the date of acquisition is
termed as pre-acquisition dividends. It is regarded as:
– A reduction in the cost of investment in the subsidiary;
– The dividend portion paid out of profit earned after
acquisition (i.e. post-acquisition profit) should be treated
as income in the accounts of the holding company.
• The ledger adj. journal in the books of parent should be:
• Dr Bank / Dividends receivable (H Ltd)
Cr Investment in subsidiary (pre-acq. div.) XXX 36 Example 3
Statements of F/P of H Ltd and S Ltd at 31 December 20X1
when H Ltd acquired 80% of the shares in S Ltd:
Investment in S Ltd
Current Assets - Bank
Current Liabilities Share Capital @$1
Retained profits H Ltd
8,800 S Ltd
1,700 Assume that immediately after the acquisition, S Ltd pa...
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- Spring '14