Learning Unit 8 - Treatments of Dividends During Consolidation

FAC2602
Open Rubric
LEARNING OUTCOME
You should be able to account for any ordinary dividend declared or paid by a subsidiary
in the consolidated financial statements of companies in accordance with International
Financial Reporting Standards.
OVERVIEW
8.1 INTRODUCTION ................................................................................................... 2

8.2 DIVIDENDS PAID OR DECLARED BY T H E SUBSIDIARY................................ 2
8.3 EXERCISES ........................................................................................................ 27
SELF-ASSESSMENT.................................................................................................... 40
KEY CONCEPTS
• Dividends declared vs paid
• Declaration by parent vs subsidiary
• Allocation of dividend to NCI
• Pro forma consolidation entries
ASSESSMENT CRITERIA
After studying this learning unit, you should be able to:
• distinguish between dividends paid by the parent and dividends
paid by the subsidiary
• calculate ordinary dividends declared or paid by a subsidiary
• record any ordinary dividend declared or paid by a subsidiary in the
consolidated financial statements of companies
• allocate the dividend to non-controlling interests
• do the pro forma consolidation journal entries
1
8.1 INTRODUCTION
Dividends paid and/or declared in the consolidated statement of changes in equity will
always be merely the dividends payable by the owners of the parent. We eliminate all
dividends paid and/or declared by the subsidiary. This principle is in accordance with the
basic consolidation principle, namely that we need to eliminate all intragroup transactions
before we compile the consolidated annual financial statements.
Non-controlling shareholders share in the subsidiary's profit before the payment of

dividends. Therefore, if a subsidiary pays a dividend, it means that the non-controlling
owners have realised part of their interest in the profit in the form of a dividend. This will
reduce the credit balance of the NCI in the consolidated statement of financial position,
as the subsidiary now owes the non-controlling owners less.
8.2 DIVIDENDS PAID OR DECLARED BY THE SUBSIDIARY
The following are the five situations that occur most frequently with regard to dividends
in the consolidated annual financial statements:
• The subsidiary has made no provision and does not wish to make any provision
for dividends.
• The subsidiary has paid a dividend to its owner.
• The subsidiary has made provision for the dividend declared, and the parent has
made provision for the appropriate dividend receivable.
• The subsidiary has made provision for the dividend declared, but the parent has
made no provision for the appropriate dividend receivable.
• The subsidiary must make provision for a dividend declared.
Work carefully through the following five examples that explain the five situations in more
detail:
2
EXAMPLE 1
The subsidiary paid or declared no dividends
The following represent the abridged financial statements of A Ltd and its subsidiary,
B Ltd:
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20.9
A Ltd B Ltd
R R
ASSETS
Property, plant and equipment 330 000 170 000
Investment in B Ltd – 80 000 shares at fair value 88 000 -
(cost price: R88 000)
Trade and other receivables 28 000 36 000
Current account with B Ltd 10 000 -
456 000 206 000
EQUITY AND LIABILITIES
Share capital – ordinary shares (200 000/100 000 shares) 200 000 100 000
Retained earnings 120 000 38 000
Current account with A Ltd - 10 000
Trade and other payables 136 000 58 000
456 000 206 000
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR

THE YEAR ENDED 31 DECEMBER 20.9
A Ltd B Ltd
R R
Profit before tax 73 000 33 000
Income tax expense (22 000) (10 000)
PROFIT FOR THE YEAR 51 000 23 000
Other comprehensive income for the year - -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 51 000 23 000
3
STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER
20.9
Share capital Retained earnings Total
A Ltd B Ltd A Ltd B Ltd A Ltd B Ltd
R R R R R R
Balance at 1 January
200 000 100 000 84 000 15 000 284 000 115 000
20 .9
Changes in equity for
20.9
Total comprehensive
income for the year
Profit for the year 51 000 23 000 51 000 23 000
Dividend paid: ordinary (15 000) -
(15 000) -
Balance at 31
200 000 100 000 120 000 38 000 320 000 138 000
December 20.9
A Ltd acquired its interest in B Ltd on 1 January 20.7, on which date the retained earnings
of B Ltd amounted to R10 000. Consider the carrying amount of the assets and liabilities
of B Ltd to be equal to the fair value thereof on the date of acquisition.
SOLUTION 1
Calculations
1. Analysis of owner's equity of B Ltd

A Ltd 80 %* NCI
Total At Since 20 %
R R R R
At acquisition
Share capital 100 000 80 000 20 000
Retained earnings 10 000 8 000 2 000
110 000 88 000 22 000
Purchase difference - - -
Consideration and NCI 110 000 88 000 22 000
Since acquisition
• To beginning of current year
Retained earnings (2) 1 000
5 000 4 000
(15 000 - 10 000) (1)
• Current year 4 600
Profit for the year 18 400
23 000
(3)
138 000 22 400 27 600
* 80 000/100 000 shares x 100% = 80%
4
2. Pro forma consolidated journal entries
Dr Cr NCI
R R R
Share capital 100 000
Retained earnings 10 000
Goodwill NIL
Investment in B Ltd 88 000
Non-controlling interests 22 000 22 000
Elimination of owner's equity of B Ltd at
acquisition
Recording of non-controlling interests in B
Ltd for the period ended 31 December 20.8
23 000(a)
Non-controlling interests (SCI) 4 600
Non-controlling interests (SFP) 4 600 4 600(b)
Recording of non-controlling interests in
B Ltd for the current year
Current account with A Ltd - B Ltd 10 000
Current account with B Ltd - A Ltd 10 000
Elimination of common items
27 600(c)
5
A LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER
20.9
R
ASSETS
Non-current assets
Property, plant and equipment (330 000 + 170 000) 500 000
Current assets
Trade and other receivables (28 000 + 36 000) 64 000
Total assets 564 000

Equity attributable to owners of the parent
342 400
Non-controlling interests(3)/(c) 27 600
Total equity 370 000
Current liabilities
Trade and other payables (136 000 + 58 000) 194 000
Total equity and liabilities 564 000
A LTD GROUP
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20.9
R
Profit before tax (73 000 + 33 000) 106 000
Income tax expense (22 000 + 10 000) (32 000)
PROFIT FOR THE YEAR 74 000
Other comprehensive income for the year -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 74 000
Total comprehensive income attributable to:

Owners of the parent (74 000 − 4 600) 69 400
Non-controlling interests (1)/(b) 4 600
74 000
6
A LTD GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 DECEMBER 20.9
Non-
Share Retained control- Total
Total
capital earnings ling equity
interests
R R R R R
Balance at 1 January 20.9 200 000 88 000* 288 000 23 000(a) 311 000
Changes in equity for 20.9
Total comprehensive
income for the year
Profit for the year 69 400 69 400 4 600(b) 74 000
Dividend paid: ordinary (15 000) (15 000) - (15 000)
Balance at 31 December
200 000 142 400 342 400 27 600(c) 370 000
20.9
(2)
* (84 000 + 4 000 )
EXAMPLE 2
Dividends paid by subsidiary
B Ltd:
A Ltd B Ltd
R R
ASSETS
Investment in B Ltd – 80 000 shares at fair value 88 000 -
(cost price: R88 000)
Current account with B Ltd 10 000 -
456 000 206 000
Current account with A Ltd - 10 000
456 000 206 000
7
A Ltd B Ltd
R R
Gross profit 73 000 33 000
Dividends received 9 600 -


20.9

R R R R R R
200 000 100 000 84 000 15 000 284 000 115 000
20.9
20.9
Total comprehensive
income for the year
Dividend paid: ordinary (15 000) (12 000) (15 000) (12 000)
Balance at 31
200 000 100 000 129 600 26 000 329 600 126 000
December 20.9
8
SOLUTION 2
We will draft the consolidated financial statements as follows:
Calculations
A Ltd 80%* NCI
Total At Since 20%
R R R R
At acquisition
Share capital 100 000 80 000 20 000
110 000 88 000 22 000
Since acquisition
Retained earnings 5 000 (2)
1 000
4 000
(15 000 -10 000)
• Current year
Profit for the year 23 000 18 400
(1)
4 600
Ordinary dividend (12 000) (9 600) (2 400)
(3)
126 000 12 800 25 200
* 80 000/100 000 shares x 100% = 80%
9
Dr Cr NCI
R R R
Goodwill NIL
Elimination of owner's equity of
B Ltd at acquisition
B Ltd for the period ended 31 December
20.8
23 000(a)
Dividends received (A Ltd) 9 600
Non-controlling interests 2 400 (2 400)(c)
Dividends paid (B Ltd) 12 000
Elimination of intragroup dividend and
recording of non-controlling interests in
dividend
Current account with A Ltd (B Ltd) 10 000
Current account with B Ltd (A Ltd) 10 000
25 200(d)
10
A LTD GROUP
20.9
R
ASSETS
Non-current assets
Current assets

342 400
Non-controlling interests(3)/(d) 25 200
Current liabilities
A LTD GROUP
R

Non-controlling interests(1)/(b) 4 600
74 000
11
A LTD GROUP
31 DECEMBER 20.9
Non-
Total
interests
R R R R R
Total comprehensive income for
the year
Dividend paid: ordinary (15 000) (15 000) (2 400)(c) (17 400)
Balance at 31 December 20.9 200 000 142 400 342 400 25 200(d) 367 600
(2)
* (84 000 + 4 000 )
COMMENT
We always eliminate the dividends paid by the subsidiary, as the transaction takes
place within the group. Dividends paid normally have a debit balance, whereas
dividends received have a credit balance as they are an income. To eliminate the
dividends, we debit the dividends amounting to R9 600 received by A Ltd and credit the
dividends amounting to R12 000 paid by B Ltd. (That is why the statement of profit or
loss and other comprehensive income no longer includes dividends received.) The
balancing figure in the journal is a debit balance of R2 400. We debit NCI, thereby
reducing the balance in the statement of financial position as the non-controlling owners
realised a portion of their share in the profit in the form of a dividend received.
Dr Cr
R R
Dividends received – A Ltd R9 600
Non-controlling interests R2 400
Dividends paid – B Ltd R12 000
12
EXAMPLE 3
Parent made provision for dividend declared by subsidiary
B Ltd:
A Ltd B Ltd
R R
ASSETS
Investment in B Ltd – 80 000 shares at fair value
(cost price: R88 000) 88 000 -
Current account: B Ltd 19 600 -
465 600 206 000
Current account: A Ltd - 10 000
Dividends payable - 12 000
465 600 206 000

A Ltd B Ltd
R R
13
20.9
R R R R R R
Balance at 1 January 20.9 200 000 100 000 84 000 15 000 284 000 115 000
20.9
Total comprehensive
income for the year
Dividends declared and
(15 000) (12 000) (15 000) (12 000)
paid: ordinary
200 000 100 000 129 600 26 000 329 600 126 000
20.9
SOLUTION 3
Calculations
A Ltd 80 %* NCI
Total At Since 20%
R R R R
At acquisition
Share capital 100 000 80 000 20 000
Retained earnings
10 000 8 000 2 000
110 000 88 000 22 000
Purchase difference
- - -
Consideration and NCI
110 000 88 000 22 000
Since acquisition
(2)
5 000
(15 000 - 10 000) 23 000 18 400 4 600
(1)
• Current year (12 000) (9 600) (2 400)

Profit for the year 126 000 (3)
12 800 25 200
Ordinary dividend
* 80 000/100 000 shares x 100% = 80%
14
Dr Cr NCI
R R R
Goodwill NIL
acquisition
B Ltd for the period ended 31 December 20.8
23 000(a)
Recording of non-controlling interests in B
Ltd
for the current year
Dividend received (A Ltd) 9 600
Dividend declared (B Ltd) 12 000
Elimination of intragroup dividend and
recording of non-controlling interests in
dividend
Dividends payable – B Ltd 9 600
Current account: A Ltd – B Ltd 9 600
Transfer of relevant share of dividend due by
B Ltd to the current account of A Ltd
Current account: A Ltd – B Ltd 19 600
Current account: B Ltd – A Ltd 19 600
25 200(d)
15
A LTD GROUP
20.9
R
ASSETS
Non-current assets
Current assets

342 400
Current liabilities
Dividends payable (12 000 − 9 600) 2 400
Total liabilities 196 400
A LTD GROUP
R
Profit before tax (82 600 − 9 600 + 33 000) 106 000

74 000
16
A LTD GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR
ENDED 31 DECEMBER 20.9
Non-
Total
interests
R R R R R
Total comprehensive income
for the year
Dividend declared and paid:
(15 000) (15 000) (2 400)(c) (17 400)
ordinary
Balance at 31 December 20.9 200 000 142 400 342 400 25 200(d) 367 600
* (84 000 + 4 000(2))
COMMENT
In this example, the subsidiary declared a dividend that it has not paid yet. In the
subsidiary's financial records, the dividend payable is a liability of R12 000. For the
parent, it is a receivable asset of R9 600.
We should eliminate the current accounts in the group (what they owe each other)
against each other, but we can only do this once the accounts are equal. R9 600 of the
R12 000 dividends payable by B Ltd is payable to A Ltd. We transfer the liability of R9
600 from dividends payable to the current account: A Ltd, as both represent what is
payable to A Ltd. Therefore:
Dr Cr
R R
Dividends payable – B Ltd R9 600
Current account: A Ltd – B Ltd R9 600
After making the entry above, the current account in B Ltd is also equal to R19 600
(R10 000 + R9 600), and we can eliminate the two accounts against each other.
Therefore:
Dr Cr
R R
Current account: A Ltd – B Ltd R19 600
Current account: B Ltd – A Ltd R19 600
17
EXAMPLE 4
Parent made no provision for dividend
B Ltd:
A Ltd B Ltd
ASSETS R R
(cost price: R88 000) 88 000 -
456 000 206 000
Dividends payable - 12 000
456 000 206 000

A Ltd B Ltd
R R
18
20.9
R R R R R R
200 000 100 000 84 000 15 000 284 000 115 000
20.9
20.9
Total comprehensive
income for the year
Dividend declared:
(15 000) (12 000) (15 000) (12 000)
ordinary
Balance at 31
200 000 100 000 120 000 26 000 320 000 126 000
December 20.9
SOLUTION 4
Calculations

A Ltd 80 %* NCI
Total At Since 20 %
R R R R
At acquisition
Share capital 100 000 80 000 20 000
110 000 88 000 22 000
Since acquisition
Retained earnings
(2)
(15 000 - 10 000) 5 000 4 000 1 000
• Current year
Profit for the year 23 000 18 400 (1)
4 600
Ordinary dividend (12 000) (9 600) (2 400)
(3)
126 000 12 800 25 200
* 80 000/100 000 shares x 100% = 80%
19
2. Entry in the financial records of A Ltd
Dr Cr
R R
Current account: B Ltd 9 600
Dividend received 9 600
Recording of dividend receivable

Dr Cr NCI
R R R
Goodwill NIL
Elimination of owner's equity of B Ltd at acquisition
Recording of non-controlling interests in B Ltd for the
23 000(a)
period ended 31 December 20.8
Recording of non-controlling interests in B Ltd for the
current year
Dividend received (A Ltd) 9 600
Dividend paid (B Ltd) 12 000
Elimination of intragroup dividend and recording of
non-controlling interests in dividend
Dividends payable (B Ltd) 9 600
Current account: A Ltd (B Ltd) 9 600
Transfer of appropriate share of dividend due by
B Ltd to the current account of A Ltd
Current account: B Ltd (A Ltd) 19 600
25 200(d)
20
A LTD GROUP
20.9
ASSETS R
Non-current assets
Current assets

342 400
Current liabilities
Dividends payable (12 000 − 9 600) 2 400
A LTD GROUP
R

74 000
21
A LTD GROUP
31 DECEMBER 20.9
Non-
Total
interests
R R R R R
for the year
Dividend declared: ordinary (15 000) (15 000) (2 400)(c) (17 400)
200 000 142 400 342 400 25 200(d) 367 600
20.9
* (84 000 + 4 000(2))
COMMENT
The only difference between this example and example 3 is that in this example the
parent has not yet accounted for the dividend receivable of R9 600. That is why there
is an entry in A Ltd's individual records first, to account for this, before we make the
consolidation journal entries.
We do not adjust the profit before tax with the R9 600 as in example 3. There are
journals where dividends receivable are debited and credited with R9 600 in this
example. These cancel each other out.
22
EXAMPLE 5
Subsidiary made no provision for the dividend
B Ltd:
A Ltd B Ltd
ASSETS R R
(cost price: R88 000) 88 000 -
456 000 206 000
456 000 206 000

A Ltd B Ltd
R R
23
20.9
R R R R R R
200 000 100 000 84 000 15 000 284 000 115 000
20.9
20.9
Total comprehensive
income for the year
Dividend paid: ordinary (15 000) (15
- 000) -
200 000 100 000 120 000 38 000 320 000 138 000
20.9
of B Ltd to be equal to the fair value thereof on the date of acquisition. On 31 December
20.9, B Ltd decided to declare a dividend of R12 000.
SOLUTION 5
Calculations

A Ltd 80 %* NCI
Total At Since 20%
R R R R
At acquisition
Share capital 100 000 80 000 20 000
110 000 88 000 22 000
110 000 88 000 22 000
Since acquisition
Retained earnings 5 000 (2) 1 000
(15 000 - 10 000) 4 000
• Current year 23 000 (1)
4 600
Profit for the year (12 000) 18 400 (2 400)(4)
Ordinary dividend (9 600)
(3)
126 000 12 800 25 200
* 80 000/100 000 shares x 100% = 80%
24
Since B Ltd has not yet made provision for the dividend and A Ltd has not yet reacted to
it, we only provide for the dividend owing to the non-controlling owners, as we would have
eliminated the dividends between A Ltd and B Ltd anyway.

Dr Cr NCI
R R R
Goodwill NIL
acquisition
B Ltd for the period ended 31 December 20.8
23 000(a)
Dividends payable 2 400
Provision for dividend payable to non-controlling owners
Current account: B Ltd (A Ltd) 10 000
25 200(d)
25
A LTD GROUP
20.9
R
ASSETS
Non-current assets
Current assets

342 400
Current liabilities
Dividends payable(4) 2 400
A LTD GROUP
R

74 000
26
A LTD GROUP
31 DECEMBER 20.9
Non-
Share Retained Total
Total controlling
capital earnings equity
interests
R R R R R
Changes in equity for 20 .9
for the year
200 000 142 400 342 400 25 200(d) 367 600
20.9
* (84 000 + 4 000(2))
8.3 EXERCISES
Answer the following two questions. Your e-tutor can guide you in answering them.
QUESTION 1
The following balances were obtained from the books of A Ltd and its subsidiary, B Ltd,
for the year ended 28 February 20.4:
A Ltd B Ltd
R R
Sales 600 000 400 000
Cost of sales 340 000 220 000
Repairs and maintenance 35 000 30 000
Depreciation – equipment 18 000 16 000
Interest received on loan to B Ltd 10 000 -
Loan from A Ltd - 15 000
Loan to B Ltd 20 000 -
Staff cost 36 000 24 000
Interest paid 4 000 20 000
Auditors' remuneration 8 000 7 000
Taxation 67 600 32 800
Dividends paid 10 000 20 000
Retained earnings – 1 March 20.3 45 000 59 000
Included in cost of sales:
- Inventories 1 March 20.3 18 000 18 000
- Inventories 28 February 20.4 15 000 20 000
Share capital 100 000 80 000
27
Additional information
1. On 1 March 20.2, when B Ltd was incorporated, A Ltd acquired 80% of the shares
and voting rights in B Ltd. No goodwill was payable by A Ltd, and at the date of
acquisition, the carrying amount of the assets and liabilities were equal to the fair
value thereof.
2. Since incorporation, A Ltd has bought all its inventories from B Ltd at cost plus
33.3%. On 28 February 20.4 inventories to the value of R5 000 were still in transit.
B Ltd sold inventories of R317 000 to A Ltd during the year.
3. On 1 March 20.2, B Ltd sold equipment to A Ltd at a profit of R20 000. Both
companies depreciate equipment at 20% per annum on the straight-line method.
4. On 28 February 20.4, A Ltd sold property to B Ltd at a profit of R20 000. This profit
was included in the sales of the company.
REQUIRED
Draft the consolidated statement of profit or loss and other
comprehensive income and the consolidated statement of changes
in equity of the A Ltd Group for the year ended 28 February 20.4 in
compliance with the requirements of IFRS. Show all your
calculations and ignore taxation on unrealised profits and/or losses
as well as capital gains tax.
QUESTION 2
The following represent the condensed statements of profit or loss and other
comprehensive income and statements of changes in equity of X Ltd and its subsidiary, Y
Ltd, for the year ended 30 June 20.3:
28
THE YEAR ENDED 30 JUNE 20.3
X Ltd Y Ltd
R R
Gross profit 465 000 329 000
Other income 35 000 1 000
Interest received – trade receivables 5 000 1 000
500 000 330 000
Expenses (200 000) (150 000)
Depreciation 120 000 100 000
Staff cost 80 000 50 000
STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 20.3

X Ltd Y Ltd X Ltd Y Ltd X Ltd Y Ltd
R R R R R R
Balance at 1 July 20.2 300 000 200 000 150 000 160 000 450 000 360 000
the year
Dividend paid: ordinary (50 000) (20 000) (50 000) (20 000)
Balance at 30 June 20.3 300 000 200 000 280 000 250 000 580 000 450 000
29
Additional information
1. On 1 July 20.0, X Ltd acquired 70% of the voting rights in Y Ltd for R155 000, on
which date Y Ltd's owner's equity consisted of the following:
R
Consider the carrying amount of the assets and liabilities of Y Ltd to be equal to the
fair value thereof on the date of acquisition. It is the policy of the group to show
goodwill at cost price in the financial statements.
2. Y Ltd manufactures the same kind of heavy machinery that X Ltd uses. On 1 July
20.1,jY Ltd sold a machine, which had cost R150 000 to manufacture, to X Ltd for
R200 000.
3. The records with regard to X Ltd's machinery contain the following:

R
Machinery purchased – 1 July 20.0 400 000
Depreciation – 30 June 20.1 (80 000)
320 000
Purchase of new machinery from Y Ltd – 1 July 20.1 200 000
Depreciation – 30 June 20.2 (120 000)
– 30 June 20.3 (120 000)
Machinery at carrying amount – 30 June 20.3 280 000
Depreciation is calculated at 20% per annum on the straight-line method.
4. X Ltd sells some of its inventories to Y Ltd at a profit of 20% on the cost price. Y Ltd
had the following inventories on hand, which they purchased from X Ltd:
R
30 June 20.2 36 000
30 June 20.3 72 000
REQUIRED
Draft the consolidated statement of profit or loss and other
comprehensive income and the consolidated statement of changes
in equity of the X Ltd Group for the year ended 30 June 20.3 in
compliance with the requirements of IFRS. Show all your
calculations. Ignore taxation on unrealised profits and/or losses as
well as capital gains tax.
30
SOLUTIONS
QUESTION 1
A LTD GROUP
COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 20.4
Note R
Revenue (600 000 + 400 000 − 20 000 − 317 000) 663 000
Cost of sales (340 000 + 220 000 − 317 000 − 4 500 + 5 000) (243 500)
Gross profit 419 500
Administrative expenses [(18 000 + 16 000 − 4 000) + 8 000 (170 000)
+ 7 000 + 36 000 + 24 000 + 35 000 + 30 000]
Finance cost (4 000 + 20 000 − 10 000) (14 000)
Profit before tax 1 235 500

Non-controlling interests (calculation 1)(b) 10 740
135 100
A LTD GROUP
NOTES FOR THE YEAR ENDED 28 FEBRUARY 20.4
1. Profit before tax

R
Profit before tax is arrived at after taking into account the following:
Expenses
Auditors' remuneration (8 000 + 7 000) 15 000
Depreciation (18 000 + 16 000 − 4 000) 30 000
Staff cost (36 000 + 24 000) 60 000
31
A LTD GROUP
28 FEBRUARY 20.4
Non-
Total controlling
interests
R R R R R
Balance at 1 March 20.3 100 000 75 800# 175 800 23 700(a) 199 500
the year
Balance at 28 February 20.4 100 000 190 160 290 160 30 440(d) 320 600
# 45 000 + 30 800(e)
(a) 16 000(a) + 7 700(a)
32
Calculations
A Ltd 80 % NCI
Total At Since 20%
R R R R
At acquisition
Share capital 80 000 64 000 16 000
80 000 64 000 16 000
Consideration and NCI 80 000 64 000 16 000(a)
Since acquisition
Retained earnings 38 500 30 800(e) 7 700(a)
Given 59 000
At acquisition -
59 000
Unrealised profit in inventory
(18 000 x 33.3/133)) (4 500)
Unrealised profit on sale of
equipment (20 000)
Depreciation on unrealised profit
(20 000 x 20/100) 4 000
• Current year
(b)
Profit for the year 53 700 42 960 10 740
Profit after tax 50 200(1)
Unrealised profit in opening
inventory 4 500
Unrealised profit in closing
inventory (15 000 + 5 000) x
33.3/133 (5 000)
Depreciation on unrealised
profit 4 000
Dividend paid (20 000) (c)
(16 000) (4 000)
152 200 57 760 30 440(d)
33
(1)
400 000 - 220 000 - 30 000 - 16 000 - 24 000 - 20 000 - 7 000 - 32 800
2. Entry in the financial records of A Ltd

Dr Cr
R R
Inventory 5 000
Loan to B Ltd 5 000
Recording of inventory in transit

Dr Cr NCI
R R R
Sales – B Ltd 317 000
Cost of sales – A Ltd 317 000
Elimination of intragroup sales
Cost of sales – B Ltd 5 000
Inventory – A Ltd 5 000
Elimination of unrealised profit in closing inventory of A Ltd
Retained earnings – B Ltd 4 500
Cost of sales – B Ltd 4 500
Elimination of unrealised profits in opening inventory of A Ltd
Equipment – A Ltd 20 000
Elimination of unrealised profits on sale of equipment
Accumulated depreciation – A Ltd 4 000
Elimination of depreciation associated with sale of equipment
for the period ended 28 February 20.3
Accumulated depreciation – A Ltd 4 000
Depreciation – B Ltd 4 000
Elimination of depreciation associated with sale of equipment
for the year ended 28 February 20.4
Sales – A Ltd 20 000
Property – B Ltd 20 000
Elimination of unrealised profits on sale of property
Interest received – A Ltd 10 000

Interest paid – B Ltd 10 000
Elimination of intragroup interests on loan
Elimination of owner's equity of B Ltd at acquisition
34
Recording of non-controlling interests in B Ltd for the period
ended 28 February 20.3
23 700(a)
Recording of non-controlling interests in B Ltd for the current
year
Dividend received – A Ltd 16 000

Dividend paid – B Ltd 20 000
Elimination of intragroup dividends and recording of non-
controlling interests in the dividend
Loan from A Ltd – B Ltd 15 000
Loan to B Ltd – A Ltd 15 000
Elimination of intragroup balances on loan accounts
30 440(d)
35
QUESTION 2
X LTD GROUP
COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 20.3
Note R
Gross profit [465 000 + 329 000 + (20/120 x 36 000) − 788 000
(20/120 x 72 000)]
Other income [5 000 + 1 000 + 30 000 − (20 000 x 70%)] 22 000
Administrative expenses [120 000 + 100 000 − (340 000)
(50 000 x 20%) + 80 000 + 50 000]
Profit before tax 1 470 000

Non-controlling interests (calculation 1)(b) 36 000
280 000
X LTD GROUP
NOTES FOR THE YEAR ENDED 30 JUNE 20.3
1. Profit before tax

R
Profit before tax is calculated after taking into account the following:
Income
Dividends received (30 000 - 14 000(f)) 16 000
Expenses
Depreciation (120 000 + 100 000 - 10 000) 210 000
Staff costs (80 000 + 50 000) 130 000
36
X LTD GROUP
30 JUNE 20.3
Non-
Total controlling
interests
R R R R R
Balance at 1 July 20.2 300 000 214 000# 514 000 96 000(a) 610 000
for the year
Balance at 30 June 20 .3 300 000 408 000 708 000 126 000(d) 834 000
# 150 000 - 6 000 (unrealised profit in opening inventory) + 70 000(e)

(a) 66 000 + 30 000
(1) (2)
37
Calculations
1. Analysis of owner's equity of Y Ltd
X Ltd 70 % NCI
Total At Since 30%
R R R R
At acquisition
200 000 140 000 60 000
Share capital
20 000 14 000 6 000
Retained earnings
220 000 154 000 66 000
Equity represented by
1 000 1 000 -
goodwill - parent (1)
221 000 155 000 66 000
Since acquisition
• To beginning of current
(e)
year 100 000 70 000 (2)
30 000
Given (20 000)
At acquisition 140 000
(50 000)
Unrealised profit on sale of
machinery (200 000 -
150 000) 10 000
Depreciation on unrealised
profit (50 000 x 20/100)
• Current year (84 000) (b)

120 000 36 000
Profit for the year
110 000
Profit after tax
Depreciation on
10 000
unrealised profit (14 000)
(f) (c)
(20 000) (6 000)
Dividend paid (d)
421 000 140 000 126 000
38
Dr Cr NCI
R R R
Goodwill 1 000
Investment in Y Ltd 155 000
Elimination of owner's equity of Y Ltd at acquisition
Retained earnings – Y Ltd 50 000
Machinery – X Ltd 50 000
Elimination of intragroup profits on sale of machinery
Accumulated depreciation – X Ltd 10 000
Retained earnings – Y Ltd 10 000
Elimination of depreciation associated with sale of
machinery for the period ended 30 June 20.2
Accumulated depreciation – X Ltd 10 000
Depreciation – Y Ltd 10 000
Elimination of depreciation associated with sale of the
machinery for the current year
Cost of sales – X Ltd 12 000
Inventory – Y Ltd 12 000
Elimination of unrealised profits in closing inventories
Retained earnings – X Ltd 6 000
Cost of sales – X Ltd 6 000
Elimination of unrealised profits in opening inventories
Y Ltd for the period ended 30 June 20.2
96 000(a)
Y Ltd for the year ended 30 June 20.3
39
Dividends received – X Ltd 14 000
Non-controlling interests (SFP) 6 000 (6 000)(c)
Dividends paid – Y Ltd 20 000
Elimination of intragroup dividends and recording of
non-controlling interests in the dividends
126 000(d)
SELF-ASSESSMENT
After studying this learning unit, are you able to:
• distinguish between dividends paid by the parent and dividends
paid by the subsidiary?
• calculate ordinary dividends declared or paid by a subsidiary?
• record any ordinary dividend declared or paid by a subsidiary in
the consolidated annual financial statements of companies?
• allocate the dividend to non-controlling interests?
• do the pro forma consolidation journal entries?
40

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FAC2602

8.1 INTRODUCTION ................................................................................................... 2

Non-controlling shareholders share in the subsidiary's profit before the payment of

8.2 DIVIDENDS PAID OR DECLARED BY THE SUBSIDIARY

The subsidiary paid or declared no dividends

STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20.9

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR

1. Analysis of owner's equity of B Ltd

EQUITY AND LIABILITIES

Total comprehensive income attributable to:

Dividends paid by subsidiary

STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20.9

Profit before tax 82 600 33 000

Income tax expense (22 000) (10 000)

STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER

Share capital Retained earnings Total

We will draft the consolidated financial statements as follows:

EQUITY AND LIABILITIES

Total comprehensive income attributable to:

Parent made provision for dividend declared by subsidiary

STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20.9

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR

• Current year (12 000) (9 600) (2 400)

EQUITY AND LIABILITIES

Total comprehensive income attributable to:

* (84 000 + 4 000(2))

Parent made no provision for dividend

STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20.9

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR

1. Analysis of owner's equity of B Ltd

3. Pro forma consolidated journal entries

EQUITY AND LIABILITIES

Total comprehensive income attributable to:

Subsidiary made no provision for the dividend

STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20.9

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR

1. Analysis of owner's equity of B Ltd

2. Pro forma consolidated journal entries

EQUITY AND LIABILITIES

Total comprehensive income attributable to:

STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 20.3

3. The records with regard to X Ltd's machinery contain the following:

Depreciation is calculated at 20% per annum on the straight-line method.

Total comprehensive income attributable to:

1. Profit before tax

(a) 16 000(a) + 7 700(a)

2. Entry in the financial records of A Ltd

3. Pro forma consolidated journal entries

Interest received – A Ltd 10 000

Dividend received – A Ltd 16 000

Total comprehensive income attributable to:

1. Profit before tax

# 150 000 - 6 000 (unrealised profit in opening inventory) + 70 000(e)

• Current year (84 000) (b)

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