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 Dividends received under equity method 
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Joined: 01 Mar 2013
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Just wanted to clarify a few points about the equity method.
Say I own a quarter of some company A. Their net income is 40 and dividends paid is 10.
How are those dividends treated under the Income statement? I know I normally report a quarter of their net income. In this case I would also deduct a quarter of the dividend to arrive at the correct amount to put on the income statement? Which in this case is 7.5
Thanks


25 Jun 2015
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Joined: 01 Mar 2013
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Under the equity method you do not report dividends received on the income statement; they merely reduce the investment in the subsidiary on the balance sheet.


25 Jun 2015
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Joined: 01 Mar 2013
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Thanks. So in my example the net income for my company would increase by 10?


25 Jun 2015
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Joined: 01 Mar 2013
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Yes, you should report in the income statement an income of $ 10 ($40/4) following the Equity method. Dividends are not considered.
Dividends are only considered in the income statements for Financial Assets (AFS, TFV).


25 Jun 2015
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Joined: 01 Mar 2013
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How will the parent balance sheet balance? It will record $10 in its income statement and (let’s assume the parent itself pays no dividend for the sake of simplicity) this will go to retained earnings and increase equity by $10. On the asset side of the BS though it will report $10-dividend of $2.5= $7.5 (again for the sake of simplicity assuming BV of the investee net assets= FV at the time of the acquisition, so no addl depreciation etc). Any thoughts?


25 Jun 2015
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Joined: 01 Mar 2013
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ugh of course dividend received also increases the cash of the parent by $2.5… so it balances. It’s getting to me :|


25 Jun 2015
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29 Jul 2015
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