valuation of shares

This query is : Resolved

Ishwarya (Querist)
Follow

06 March 2017 Q on valuation of shares - there was a subsidiary and a holding and proposed div was given in. both the b/sheet.X ltd was holding 80% in Y ltd .so while computing profit available to ESH we reduce proposed div for both the co's but are we supposed add back proposed div in the statement to the extent of 80% in Xltd

Ishwarya

Ishwarya (Querist)
Follow

08 March 2017 can somebody solve this query

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
Follow

02 August 2025 Gotcha! You’re dealing with **valuation of shares in the context of preparing consolidated financial statements** and **calculating profit available to equity shareholders (ESH)**, especially where proposed dividends are involved in both holding (X Ltd) and subsidiary (Y Ltd).

---

### Here’s the key accounting treatment:

1. **Proposed Dividend in Individual Companies:**

* When preparing individual financials, **proposed dividend** is deducted from profit available to equity shareholders.
* So, in **X Ltd** and **Y Ltd** standalone, proposed dividend reduces their respective profits available to ESH.

---

2. **In Consolidation:**

* Since **X Ltd owns 80% of Y Ltd**, when preparing consolidated financial statements, **intercompany transactions and balances should be eliminated**.
* The **proposed dividend declared by Y Ltd to X Ltd (the holding company)** is an intercompany dividend.

---

3. **Adjusting for Proposed Dividend:**

* In consolidation, **dividends declared by subsidiary to holding company are eliminated** to avoid double counting.
* Therefore, you **add back the proposed dividend declared by Y Ltd to the extent of 80% owned by X Ltd** when computing consolidated profit available to ESH.
* The **remaining 20% of dividend is for the minority interest** and remains deducted.

---

### So, for your question:

> *Are we supposed to add back proposed dividend in the statement to the extent of 80% in X Ltd?*

**Yes, you add back 80% of the proposed dividend declared by Y Ltd when computing consolidated profit available to ESH, because that dividend is an intercompany transfer and should be eliminated in consolidation.**

---

### Quick summary:

| Step | Action |
| -------------------------- | -------------------------------------------------------------------- |
| Proposed dividend in Y Ltd | Deducted in Y Ltd’s standalone P\&L |
| Dividend from Y to X Ltd | Intercompany dividend; eliminate 80% in consolidation by adding back |
| Proposed dividend in X Ltd | Deducted from X Ltd’s standalone profit |
| Consolidated profit to ESH | Adjust for dividend elimination accordingly |

---

If you want, I can help you draft a journal entry or worksheet adjustment for this consolidation step. Would that help?

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now