View unanswered posts | View active topics It is currently 27 May 2018



Reply to topic  [ 8 posts ] 
 Intercorporate Investment: treatment of dividend in I/S & B/ 
Author Message

Joined: 01 Mar 2013
Posts: 14
space
Dear all, please correct me if I wrong:
say, Comp A is Investor & B is associates.
A holds 20% share of B. Now B has net profit of $ 5000 ; out of which $2500 distributed as dividend..what will be the impact on Investor’s Balance sheet and Income Statement?
Ans:
The carrying value will be increased by $500 in B/S..now my question is whether the cash balance will also be inncreased by $500 since retained earnings go up by $1000?
Of course $1000 will be reported in Equity income in I/S.


26 Jun 2015
Profile
space

Joined: 01 Mar 2013
Posts: 19
space
B/S: +1000 (20% of 5000 net profit) - 500 (20% of 2500 divs) = +500
I/S: +500 (20% of 2500 divs)
And yes, $500 is cash balance as it is paid from B to A.


26 Jun 2015
Profile
space

Joined: 01 Mar 2013
Posts: 16
space
Yes, cash will increase with 500.


26 Jun 2015
Profile
space

Joined: 01 Mar 2013
Posts: 24
space
shootforthestars1 wrote:
B/S: +1000 (20% of 5000 net profit) - 500 (20% of 2500 divs) = +500
I/S: +500 (20% of 2500 divs)
And yes, $500 is cash balance as it is paid from B to A.
Equity income = Net profit of associate * % Share
Dividends are not accounted for in the IS under equity method.


26 Jun 2015
Profile
space

Joined: 01 Mar 2013
Posts: 12
space
Gurifissu wrote:
shootforthestars1 wrote:
B/S: +1000 (20% of 5000 net profit) - 500 (20% of 2500 divs) = +500
I/S: +500 (20% of 2500 divs)
And yes, $500 is cash balance as it is paid from B to A.
Equity income = Net profit of associate * % Share
Dividends are not accounted for in the IS under equity method.
Ohhh, yes you’re right - so wrt dividends, all we do is - receive cash % of your share of dividends and reduce investment account in that company by that amount to reflect decline in assets? No change in I/S whatsoever?


26 Jun 2015
Profile
space

Joined: 01 Mar 2013
Posts: 16
space
Exactly.
Let’s be more thorough: the equity investment balance sheet line = purchase price + % * net profit - % * Dividends distributed.
You subtract the dividends because they go directly in the cash account, and we wouldn’t receive it twice would we :D?
Equity investment income, assuming no left-over down/upstream transactions = % * subsidiary’s income - (Fair value - Book value of net identifiable assets Amortization).


26 Jun 2015
Profile
space

Joined: 01 Mar 2013
Posts: 22
space
thanks mate -quite useful!


26 Jun 2015
Profile
space

Joined: 01 Mar 2013
Posts: 14
space
Big thanks to all


26 Jun 2015
Profile
Display posts from previous:  Sort by  
Reply to topic   [ 8 posts ] 

Who is online

Registered users: Baidu [Spider], Google [Bot]


You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot post attachments in this forum

Search for:
Jump to:  
cron
Powered by phpBB® Forum Software © phpBB Group

Copyright © 2004-2017 AnalystSpace.net. All Rights Reserved