Consolidated financial statements
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
25 June 2012
Why Pre-Acquisition Dividend is deducted from Amoun Invested while calculating Goodwill/ Capital Reserve on Cost of Control?
27 June 2012
Concepts:
As per AS 13 read with AS 9, income has to recognised in P&L on accrual basis. Income can accrue only when it owns the asset for the period.
Though there is a slight difference between Interest and dividend, as one interest is not subject to declaration but dividend is. But both are incomes distributed for a particular period.
Thus if you buy an investment in interim, it is understood that the purchase price represents the value of undistributed earnings and future growth.
Consider the entity distributes the entire retained earnings as dividend.
Here if the full amount is recognised in P&L, there will be an impairment issue for investment.(Goodwill will be higher)
Thus it goes with cum investment pruchase concept of AS 13.
As per AS 13 read with AS 9, income has to recognised in P&L on accrual basis. Income can accrue only when it owns the asset for the period.
Though there is a slight difference between Interest and dividend, as one interest is not subject to declaration but dividend is. But both are incomes distributed for a particular period.
Thus if you buy an investment in interim, it is understood that the purchase price represents the value of undistributed earnings and future growth.
Consider the entity distributes the entire retained earnings as dividend.
Here if the full amount is recognised in P&L, there will be an impairment issue for investment.(Goodwill will be higher)
Thus it goes with cum investment pruchase concept of AS 13.
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