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Ca final accounts-plz explain

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can anybody plz explain para 27 regarding preference dividend in holding

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Tehsinkhan Pathan (CA CMA DISA(ICAI) B.COM) (3956 Points)
Replied 29 January 2012

Para - 27 of AS - 21 , it deals with the dividend to be paid to " Cumulative preference share holders"

Firstly understand meaning of Cumulative Preference Share = it is the such type of capital wherein if for a particular year , preference dividend is not paid then it cumulates and to be paid when company earns profit

E.g. 10% Cumulative pref share capital - 100000

in the year 2009 company makes loss

in the year 2010 company earns profit of 100000

Now, no dividend to paid in 2009 and it gets cumulated

in year 2010, dividend to be paid is 20000 (100000*10%*2yrs)

and profit after pref divi. will be 100000-20000 = 80000 (here for the year 2009, dividend is also paid)

UNDERSTANDING OF PARA - 27 OF AS - 21 (CONSIDERING ABOVE EXAMPLE)

ON THE DATE OF CONSOLIDATION, FIRSTLY WE DEDUCT PREFERENCE DIVIDEND THEN WE WILL DO PROFIT ANALYSIS FOR THE PURPOSE OF CONSOLIDATION.

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Aliasgar Poonawala (CA) (180 Points)
Replied 29 January 2012

In other words, Para 27 of AS-21 is always applicable while preparing consolidated financial statement!

Whenever in the question, there are Preference Shares, we must ALWAYS deduct dividend of the current financial year (and previous years also, if unapaid!) for the purpose of calculating profits for holding company and minority, whether or not this is mentioned in the adjustments. This adjustment needs to be done in 'Analysis of Profits'. Share of holding company will be shown in P/L of holding company, while the share of minority will be shown as a Liability.

Hope this clarifies your query :)

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