23 March 2010
I have a query in accounts .........please solve it(IPCC)
Situation: If We are preparing investment accounts for financial year 2009-2010 then
Mr. A purchased 500 equity shares on 1st april 2009 @ Rs 18 per share(FACE VALUE Rs. 10). Dividend declared on 1st may @ 10%. Since we are receiving dividend for the 2008-2009 but we create the investment account with the dividend which we receive in 2008-2009 . Why we credit investment account with amount of dividend which we recieve of previous year please tell me the logic behinnd this
25 March 2010
Hi Anuj, when the accounting year ends, in the next year th emarket price increases in the anticipation of final dividend and after the dividend is declared it again reduces. so when the investment is purchsed before declaration of dividend it will not only contain the price of share but also the anticipated dividend (I.e.cum dividend). the whole amount is debited to investment A/c i.e. the anticipated dividend's cost also gets debited to invt. A/c and it increases the cost of invt.. Hence, when the dividend is declared, it is cr. to invt. A/c to reduce the cost of invt. This is the logic of crediting pre-acquisition dividend to invt. A/c Regards, CA Shakuntala Chhangani
CAclubindia
