Unit 11 - Grp Rep - Consol Fin Stat

Distributions eg dividends received in excess of post

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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 investment. 35 Elimination of Intra-group Dividends from Pre-acquisition Profits • 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; and – 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) XXX • 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: Fixed Assets Investment in S Ltd Current Assets - Bank Current Liabilities Share Capital @$1 Retained profits H Ltd $000 6,000 1,800 2,000 9,800 (1,000) 8,800 S Ltd $000 2,000 700 2,700 (1,000) 1,700 8,000 800 8,800 1,200 500 1,700 Assume that immediately after the acquisition, S Ltd pa...
View Full Document

Ask a homework question - tutors are online