Kindly guide on the following query:
Holding Company ABC (Indian Company) received dividend from its 100% foreign subsidiary. The dividend is disrtibuted from the past earnings og the subsidiary.
Queries:
1. How should this transaction be accounted in books of Holding and Subsidiary Company.
2. When consolidating, how will this dividend get eliminated.
Looks like a very lame question. pls guide
CA Sachin Rastogi
(Audit/IFRS Manager)
(338 Points)
Replied 29 March 2012
Mohan
On payment of dividend, the subsidiary company will pass following entry:
Retained earnings - debit
Bank account - credit
On receipt of dividend the holding company will pass following entry:
Bank account - debit
Dividend income - credit
On consolidation of holding company with subsidiary company following consolidation adjustment will be passed:
Dividend income - debit
Retained earnings - credit.
Let me know if you stil have doubts.
shivam gupta
(Student)
(142 Points)
Replied 29 March 2012
Dear Sir,
In case of consolidation of Foreign subsidiary, first we have to prepare Trial balance in Indian currency
& i m presuming that u already know the transalation Rules of AS11 & the difference arises dueto transalation will be booked as "Fluctuation in Foreign currency"
if the dividend received by holding Co. is out of pre acquisition profit then it will be deducted from Cost of investment (Cost of Control) as i m presuming that u know the concept of Pre & post acquisition profit
& if such dividend is received out of post acquisition profit then it should be transferred to Consolidated profit & loss A/c
Thanks for your response. Makes sense.
To sum it up:
1. Dividend income will get eliminated on consolidation (per entry No 3 posted by Sachin)
2. In my case, Sub is formed by the Holding company, hence there would be no question of reducing the carrying value of investment.
3. I will also have to pass entry for tax which Sub might have deducted as per the laws of land of Subsidiary.
4. Dividend Income will be shown as gross amount and tax deducted to be shown as expenses
5. Since dividend has been received from Foreign sub, i will have to account for Fluctuation in foreign currency as pointed out by Shivam
Pls point out if am missing out anything
shivam gupta
(Student)
(142 Points)
Replied 29 March 2012
Dear Mohan ,
As u said in ur 4th point
"Dividend Income will be shown as gross amount and tax deducted to be shown as expenses"
I think , i should remind u that on dividend CDT will be applied & such tax is paid by the co. not by theshare holder
assume if Co. proposed to pay dividend of Rs. 50000 on which 10% CDT is to be charged then in that case dividend paying co. will pay 55000 RS. becoz Divident income is taxable in the hands of CO. who pays the dividend
so there will be no issue of Gross & Net Amount
shivam gupta
(Student)
(142 Points)
Replied 29 March 2012
@ Mohan
AS11 deals with the effect of changes in Exchange Rate
& It deals, how to translate foreign currency transaction into Indian currency
also provide how to translate balance sheet & p/l in case of Foreign branch & Companied
before going into some detail i wouldlike to tell u some definition which are as follows
Spot rate means the exchange rate of immediate transaction for example A co. purchase a laptop from America in 500$ at 2.12.2012. so the exchange rate(2.12.2012) of that day is called spot rate
CAclubindia
