Company A, has promoted Company B and continues to hold 100% shares of the Company B.
It is fairly obvious that the holding company has the absolute authority to control the level of dividends (taking into account the legal requirements and capital maintenance norms). Also the very same management of the holding company has the responsibility of preparing the holding's standalone.
As per AS 9, Revenue Recognisation Dividend can be declared when the right to recieve dividend has been established. It nowhere says that it should be "declared" as per compnay law.
As per AS 1, substance should be over form.
If I am the management of the holding company, and I declare dividend on 2rd MAY, but I always knew what dividend I am going to derive from the subsidiary (as I am controlling it and I as the majority shareholder am going to authorise the dividend proposed by director, who also should be under my control..cant I show the dividend in my income statement instead of waiting for the formal declaration?
When the company is a different entity with no control, one agrees that declaration is a right to recieve and that binds the company to PAY it.
If a management is showing dividend in its income statement, it would be foolish for itself to go on and authorising declaration of a lower dividend of the subsidiary, contradicting itself (responsibility or preparing accounts).
Also, isnt it rather beaureaucratic to wait for a formal "dividend" in this situation before recognising?
CAclubindia
