Dividend received by indian company from its foreign sub

Mohan

On payment of dividend, the subsidiary company will pass following entry:

Retained earnings - debit

Bank account - credit

On receipt of dividend the holding company will pass following entry:

Bank account - debit

Dividend income - credit

On consolidation of holding company with subsidiary company following consolidation adjustment will be passed:

Dividend income - debit

Retained earnings  - credit.

Let me know if you stil have doubts.

Dear Sir,

In case of consolidation of Foreign subsidiary, first we have to prepare Trial balance in Indian currency

& i m presuming that u already know the transalation Rules of AS11 & the difference arises dueto transalation will be booked as "Fluctuation in Foreign currency"

if the dividend received by holding Co. is out of pre acquisition profit  then it  will be deducted from Cost of investment (Cost of Control) as i m presuming that u know the concept of Pre & post acquisition profit 

& if such dividend is received out of post acquisition profit then it should be transferred to Consolidated profit & loss A/c 

Thanks for your response. Makes sense.

To sum it up:

1. Dividend income will get eliminated on consolidation (per entry No 3 posted by Sachin)

2. In my case, Sub is formed by the Holding company, hence there would be no question of reducing the carrying value of investment.

3. I will also have to pass entry for tax which Sub might have deducted as per the laws of land of Subsidiary.

4. Dividend Income will be shown as gross amount and tax deducted to be shown as expenses

5. Since dividend has been received from Foreign sub, i will have to account for Fluctuation in foreign currency as pointed out by Shivam

Pls point out if am missing out anything

@ Shivam, can you pls throw more light on AS 11 related thing

Dear Mohan ,

As u said in ur 4th point

   "Dividend Income will be shown as gross amount and tax deducted to be shown as expenses"

I think , i should remind u that on dividend CDT will be applied & such tax is paid by the co. not by theshare holder

assume if Co. proposed to pay dividend of Rs. 50000 on which 10% CDT is to be charged then in that case dividend paying co. will pay 55000 RS. becoz  Divident income is taxable in the hands of CO. who pays the dividend

so there will be no issue of Gross & Net Amount  

@ Mohan

AS11  deals with the effect of changes in Exchange Rate 

& It deals, how to translate foreign currency transaction into Indian currency

also provide how to translate balance sheet & p/l in case of Foreign branch & Companied

before going into some detail i wouldlike to tell u some definition  which are as follows

Spot rate means the exchange rate of immediate transaction for example A co. purchase a laptop from America in 500$ at 2.12.2012. so the exchange rate(2.12.2012) of that day is called spot rate