consolidation method (dividends received)

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tigas

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hi Brave Ones,
any help really appreciated.
I know you just transfer pro-rata net income of the “subsidiary” but where do you record dividends received when using consolidation?…they must go somewhere, right?
even if your credit cash account, how can you make BS balance…?
many thanks and keep fighting!
cheers
t
 
Debit cash
Record dividend income on IS, which flows through to equity
Sincerely,
Brave One
 
I dont think so. A dividend is a cash payment for the income they “owe” you. So, the parent recordes a receivable for their portion of the income, and the sub has a payable. They would then net these in consolidation I believe. A dividend is like settling up for money already owed. It is not income when received.
 
jmac01 Wrote:
——————————————————-
> I dont think so. A dividend is a cash payment for
> the income they “owe” you. So, the parent
> recordes a receivable for their portion of the
> income, and the sub has a payable. They would
> then net these in consolidation I believe. A
> dividend is like settling up for money already
> owed. It is not income when received.
Can you draw it out using T accounts? I don’t understand your explanation.
 
just remember that you would be double counting if you recorded both the income and dividends as income. Also, it would just be a transfer of cash from one entity to another, which would net out in consolidation.
You always either record your % of the subs income, or you will get the dividends/interest as income. You don’t get both.
 
jmac01 Wrote:
——————————————————-
> just remember that you would be double counting if
> you recorded both the income and dividends as
> income. Also, it would just be a transfer of cash
> from one entity to another, which would net out in
> consolidation.
>
> You always either record your % of the subs
> income, or you will get the dividends/interest as
> income. You don’t get both.
Thanks!
 
jmac01…now i am + confused… damn :(
thks anyway all for the help
 
Keep in mind dividends declared may also not be paid out - low quality. In the end when you consolidate, you don’t consolidate anything beyond NI line. Hence, no effect of dividend on consolidated IS or BS.
What CP says applies to equity method. In equity method there is the investment account and asset account. % of dividends are subtracted from the investment account when received, and % of NI is added to asset account.
When you consolidate BS and IS using acquisition method, dividends really don’t play a part in the FS integration.
Correct me as I may be wrong.
 
Consolidation => add up all assets, liabilities and equity. Dividend now is internal activities since you considered the 2 firms as one (report the total in the consolidated FSs). => No effect (but in separate financial statements of the 2 firms it does affect)
Remember only in equity method you have an investment account. (dividend is matter only in this case)
 
best_seller249 Wrote:
——————————————————-
> Consolidation => add up all assets, liabilities
> and equity. Dividend now is internal activities
> since you considered the 2 firms as one (report
> the total in the consolidated FSs). => No effect
> (but in separate financial statements of the 2
> firms it does affect)
>
> Remember only in equity method you have an
> investment account. (dividend is matter only in
> this case)
So, essentially it’s just cash being moved from one entity to another, correct? I’m pretty amazed I can’t come to terms with something as simple as this, considering I scored >70 in FRA last year!
 
For equity, Dividends received is kinda of like a regular dividend from a stock, as soon as its paid the value of your share should drop by the dividend amount. It has no effect on income.
Hope that clears it up a lil
 
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