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CA Final accounts - plz explain

(Guest)

hi can anybody plz explain treatment of proposed dividend in consolidatio.how to treat proposed dividend when effect is given in balancesheet and when effect is not given as well for both holding and subsidiary cos.

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Aliasgar Poonawala (CA) (180 Points)
Replied 09 April 2012

For proposed preference dividend, we have to apply Para 27, and deduct proposed dividend from subsidiary profits (pre- or post- acquisition period depending on when the shares are acquired) for the purpose of calculation of proportionate profits for parent. We have to do this even if the question does not specify anything in this regard. The ratio to be used for proportion is the preference shares holding %. The portion relating to minority will be shown as Current Liability.

For proposed equity dividend, the treatment is much more simple. Just calculate proposed equity dividend relating to minorities and deduct the amount from "Minority Interest", and show the same as a Current Liability in the B/S. (Even here, you can follow the same treatment as in case of proposed preference dividend, but it's more convenient and time-saving to follow the method prescribed for proposed equity dividend.)

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(Guest)

i want to ask one more doubt if its given in questiion that both cos. (holding as well as subsi) declare 10% proposed dividend and nthg is given in balancesheet then will it b added back in AOP or it will only b deducted from minority interest and consolidated P/L?

Ankita Methi (Credit Underwriter) (758 Points)
Replied 09 April 2012

Adding back to aop is required in case of FINAL DIVIDEND PAID OF SUBSY,and that too if wrong treatment is done by subsy

propsed equity dividend of subsy requires deducting minority's share frm minoriuty int and showing the same as current liab

proposed div for holding requires deducting the same fom con Pl and showing it in balancesheet

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Aliasgar Poonawala (CA) (180 Points)
Replied 09 April 2012

For proposed dividend of subsidiary, the treatment mentioned above applies, ie, adjust in AOP.

For dividend proposed by parent company, the it will only affect the parent, ie, adjustment in Consolidated P/L A/c and a corresponding liability of the same amount.

The solution for dividend proposed by parent company would be different only in case of cross holding, which has to be solved separaterly.

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Ankita Methi (Credit Underwriter) (758 Points)
Replied 09 April 2012

for preference proposed dividend of subsy,aop needs to be subtraced by apt amt.

for proposed equity div of subsy,no need to touch aop,only adjustment in minority int and thn balance sheet

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(Guest)

@ aliasgar sir- sir can u plz explain the treatment of proposed dividend in cross holding as well.it has to be rectified in AOP only or needs to b treated else where also?

Aliasgar Poonawala (CA) (180 Points)
Replied 10 April 2012

First of all stop calling me 'sir' : @

Coming to your question, in cross holding you need to prepare AOP for both parent and subsidiary, and the solution is done in form simultaneous equations. Difficult to explain in writing, so I'm giving an example given by Parveen sir-

A holds 80% in B, and B holds 20% in A.

Given, capital profit of A (CA) = 100,000, Capital profits of B (CB) = 80,000

Revenue profits of A (RA) = 300,000, Revenue profits of B (RB) = 50,000

Equations are:

CA = 100,000 + 0.8CB

CB = 80,000 + 0.2CA

On solving, CB= 119,048

Similarly, RA = 300,000 +0.8RB

RB = 50,000 + 0.2RA

On solving, RB = 130,952

So when you make your AOP for B, then the total for capital and revenue profits will be 119,048 and 130,952. The balance will be shown as transfer from A, in the AOP of B, which will correspondingly also be showin in AOP of A.

For proposed dividend, similar adjustments need to be made in books of company who declares it. If A declares proposed dividend, 20% of it will be shown in AOP of B as well. I'm sure I'm not very clear to you, but this is what I could explain by a post.

Would appreciate if other members can elaborate and offer a better explanation on the above :)

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