Investment account & interim dividend

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Pawan Kr Gupta

CA-Final Student

34 Points Joined March 2010

What is the treatment of interim dividend in investment account? Is it considered pre-acquisition dividend or post acquisition dividend?
let's say 1000 shares of rs 100 each are purchased on 1 may 2011. 20% interim dividend for finacal year 11-12 is delared on 10 october 2011? what part of it is pre-acquistion and what part post acquisition? assume share price remains same throughout the year.

Replies (3)

Srikanth M S

finalist

88 Points Joined September 2008

Dear Pawan,

The consideration as to pre or post acquisition depends on from which profit the dividend was paid out off. If it is out of the profit which was lying in the balance on the date of acquisition then it is Pre acquisition. It is considered so coz, it is like the price paid for the shares is for the balance of the Net assets (from asset side)/Equity(ESC+R&S) as on the date of acquisition.

As you are speaking about the interim dividend usually it will be paid out of Current year profits, and the shares were purchased on 1-May-2011, the dividend comprises both pre and post components in it. i.e., to say, dividend paid out of the proportion of profit which existed on 1-May-2011 will be considered as pre and rest as post..

E.g.: Profit for the FY 2011-12 up-to date of consideration is Rs. 1,00,000/- out of which dividend was distributed.

Profit from 1-Apr-2011 to 1-May-2011 was Rs. 10,000/-

Dividend receivable by you Rs. 1,000/- then

Pre would be 1,000*10,000/1,00,000=Rs.100

Post would Rs. 900/-

Hope it helps you

Regards

Srikanth

Pawan Kr Gupta

CA-Final Student

34 Points Joined March 2010

Dear Srikanth sir!

Thanks a lot for your reply.

I was of the same opinion that the dividend received should be of both the pre and post acquisition periods and it should be divided based on time. in your example profit earned by company during both pre and post periods are given. and dividend recievd is divided in same ratio...but i still have a doubt.

Interim dividend recieved Rs. 20,000.

shares purchased on 01 May and dividend received on 10 October.....(same as in my earlier example). now there is no detail given regarding profit earned by company .

what amount of dividend will be pre-acquistion dividend and what amount will be post aqquisitin? i mean does the interim dividend of Rs. 20,000 belong to whole FY and hence

the pre-acquistion part will be (1/12)th part

and post-acquisitin (11/12)th part

or does the dividend received belong only to period of 1 Apr to 10 october and in this case the pre-acquistion part will be (1/6.33) part.

Please reply.

Thanx Again.

Pawan

Srikanth M S

finalist

88 Points Joined September 2008

Dear Pawan,

Find the below, may help you

Sl no.	Particulars	Total (company)	Your share
a	O/S E Shares (FV Rs.50)	10,000	1,000
	As on 1-May-12:

b	MPS as on 1-May-2012		160
c	Cost of Purchase (a*b)		160,000
	As on 1-May-12:
d	ESC @ 1-May-12 (a*50 FV)	500,000	50,000
	Reserves & surplus:
e	General Reserve	100,000	10,000
f	Profit and Loss	900,000	90,000
	Total Equity as on 1-May-12 (d+e+f)	1,500,000	150,000
	G/w paid (160000-150000) note 1		10,000

	As on 1-Oct-12:
g	Profit and Loss	4,500,000	450,000
h	Dividend paid as on 1-Oct-12 @ 10%	50,000	5,000

	Analysis
	Dividend paid out off P & L bal on:
i	1-May-2012 (h*f/g)	10,000	1,000
j	1-Oct-2012 {h*(g-f)/g}	40,000	4,000

1) G/w amount represents the excess amount paid over and above the Equity aquired. This amount is not disclosed any where. Its jst a theoritical conclusion

2) Rs. 1,000 in (i) should be reduced from Rs.1,60,000.This is cuz you paid Rs. 1,60,000 for aquiring Equity of Rs. 1,50,000 and a part of it i.e., Rs. 1000 came back to you in the form of Diviend.. Hence it is a recovery of Cost and to be deducted from the Cost of Acq.

This above is in accordance with AS 13 Investment accounting.

Regards,

Srikanth