This document discusses the accounting treatment for income from subsidiaries, including interest, dividends, and bonus shares. It explains that interest and dividends from subsidiaries are recognized as income, while interest received relating to the pre-acquisition period is deducted from the cost of acquisition. Bonus shares issued from pre-acquisition reserves are treated differently than those from post-acquisition reserves. The learning outcome is to explain the concept of subsidiaries and how they are accounted for, specifically regarding income, interest, dividends, and bonus shares. Tutorial questions on these topics are assigned for groups to complete.
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This document discusses the accounting treatment for income from subsidiaries, including interest, dividends, and bonus shares. It explains that interest and dividends from subsidiaries are recognized as income, while interest received relating to the pre-acquisition period is deducted from the cost of acquisition. Bonus shares issued from pre-acquisition reserves are treated differently than those from post-acquisition reserves. The learning outcome is to explain the concept of subsidiaries and how they are accounted for, specifically regarding income, interest, dividends, and bonus shares. Tutorial questions on these topics are assigned for groups to complete.
This document discusses the accounting treatment for income from subsidiaries, including interest, dividends, and bonus shares. It explains that interest and dividends from subsidiaries are recognized as income, while interest received relating to the pre-acquisition period is deducted from the cost of acquisition. Bonus shares issued from pre-acquisition reserves are treated differently than those from post-acquisition reserves. The learning outcome is to explain the concept of subsidiaries and how they are accounted for, specifically regarding income, interest, dividends, and bonus shares. Tutorial questions on these topics are assigned for groups to complete.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
This document discusses the accounting treatment for income from subsidiaries, including interest, dividends, and bonus shares. It explains that interest and dividends from subsidiaries are recognized as income, while interest received relating to the pre-acquisition period is deducted from the cost of acquisition. Bonus shares issued from pre-acquisition reserves are treated differently than those from post-acquisition reserves. The learning outcome is to explain the concept of subsidiaries and how they are accounted for, specifically regarding income, interest, dividends, and bonus shares. Tutorial questions on these topics are assigned for groups to complete.
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CONSOLIDATED ACCOUNT: Income From Subsidiary & Bonus Issue
Chapter 10
FRS 3 &127
Learning outcome At the end of this topic, students will be able to: Explain the concept of a subsidiary and the principles of how they are accounted for
Income From Subsidiary
Interest Dividend
INTEREST/DIVIDEND 3 different situations: both the subsidiary and holding have recorded the interest/dividend the subsidiary and holding have not recorded the interest/dividend yet the subsidiary has recorded the interest/dividend payable but the holding company has not taken credit for its share of interest/dividend receivable.
INTEREST/DIVIDEND both the subsidiary and holding have recorded the interest/dividend
Illustration 1 page 442
Dividend H acquire 300/400 = 75% control of Ord Share of S Dividend declared by S = RM20,000 Dividend receivable by H = 75% x RM20,000 = RM15,000 Already being recorded by both company record/balance can be seen in the Statement of Financial Position
INTEREST/DIVIDEND both the subsidiary and holding have recorded the interest/dividend
Illustration 1 page 442
Interest 10% debenture of S, RM100,000 interest = 10% x 100,000 = RM10,000
H acquire RM40,000 of S debenture = 40% Interest receivable by H = 4,000 Already being recorded by both company record/balance can be seen in the Statement of Financial Position
INTEREST/DIVIDEND both the subsidiary and holding have recorded the interest/dividend
Illustration 1 page 442 Disclosed in the Balance Sheet
By S Interest payable = RM10,000 By H Interest receivable = RM4,000
Consolidation Adjustment Intra group transaction will be eliminated
By S Interest payable = RM10,000 RM6,000 By H Interest receivable = RM4,000 0
INTEREST/DIVIDEND both the subsidiary and holding have not recorded the interest/dividend yet Do the recording in the both books (H and S) Illustration 2 page 446 Same fact as illustration 1 except both company have not recorded yet
INTEREST/DIVIDEND Book of S Accrue for the interest and dividends: Journal entries dt Profit & loss of S 10,000 ct Interest payable of S 10,000 dt Profit & loss of S 20,000 ct Dividend payable of S 20,000
INTEREST/DIVIDEND Book of H Recognise the income receivable from subsidiary Journal entries dt Interest receivable 4,000 ct Profit and loss of H dt
4,000
Dividend receivable 15,000 ct Profit and loss of H 15,000
INTEREST/DIVIDEND Consolidation adjustment Intra group balances of interest receivable and interest payable are cancelled off. Short cut: Interest dt Profit and loss of S 10,000 ct Profit and loss of H 4,000 Interest payable of S 6,000 Dividend dt Profit and loss of S 20,000 ct Profit and loss of H 15,000 Dividend payable of S 5,000
INTEREST/DIVIDEND Consolidation adjustment Suppose disclosed in the Balance Sheet as By S Interest payable = RM10,000 Dividend payable = RM20,000 By H Interest receivable = RM4,000 Dividend receivable = RM15,000
But the Rule is to eliminate intra group transaction. So Balance Sheet will appear as By S Interest payable = RM6,000 Dividend payable = RM5,000
Example 2: Page 448
Discussion in class
INTEREST/DIVIDEND the subsidiary has recorded the interest payable but the holding company has not taken credit for its share of interest receivable. Do the recording in the book of H Illustration 3 page 451 Same fact as illustration 1 except H had not recorded yet
INTEREST/DIVIDEND Book of H Recognise the income receivable from subsidiary Journal entries dt Interest receivable 4,000 ct Profit and loss of H dt
4,000
Dividend receivable 15,000 ct Profit and loss of H 15,000
INTEREST/DIVIDEND Consolidation adjustment disclosed in the Balance Sheet as By S Interest payable = RM10,000 Dividend payable = RM20,000 By H Interest receivable = RM4,000 Dividend receivable = RM15,000 Shown in the pre adjustment financial statement of S
Rule is to eliminate intra group transaction. So Balance Sheet will appear as
By S Interest payable = RM6,000 Dividend payable = RM5,000
INTEREST/DIVIDEND Consolidation adjustment Short cut: Interest dt Interest payable of S 4,000 ct Profit and loss of H
4,000
Dividend dt Dividend payable of S 15,000 ct Profit and loss of H 15,000
Example 3: Page 452
Discussion in class
INTEREST/DIVIDENDS: OUT OF PRE ACQUISITION PROFIT
Interest Acquired cum dividend are priced higher as next dividend or interest is imputed into the price. Interest (pre acquisition) received deducted from the cost not taken as income.
INTEREST/DIVIDENDS: OUT OF PRE ACQUISITION PROFIT
Illustration 4 page 456 1 April x2 bought 10% loan stock for RM102,500 which includes 3 months interest. 1 July x2 received year interest RM5,000
RM2,500 will be deducted from the cost (pre acq: Jan March x2) RM2,500 recognised as income (post acq: Apr June x2)
INTEREST/DIVIDENDS: OUT OF PRE ACQUISITION PROFIT
Dividend All dividends (pre or post) declared and paid by the subsidiary are considered as income. Credit Profit and loss of H
INTEREST/DIVIDENDS: OUT OF PRE ACQUISITION PROFIT
Illustration 5 page 456
Acq during the year: Dividend paid during the year
Dividends paid before aquire: Parent would not have received the dividend Dividends paid after acquire: paid out of post profit. Example 4 page 457
Bonus Shares issued by Subsidiary
Consolidation treatment of the bonus depends on the reserve utilised:
Pre acquisition reserve : Illustration 6 page 460 Post acquisition reserve: Illustration 7 page 461
