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Holding & SUbsidiary Co - Proposed Dividend, Bonus Issues

Patricia (C.S.- Professional) (sdd) (197 Points)

24 November 2009

Hi.

Gd Evening !!!. I am very lot confused and upset abont treatment of Dividend in Pre and POst Acquisition Profits . I am not getting logic and I read many books of diff authors but still the logic of Proposed Dividend, Interim Dividend, Bonus Issues - Pre and Post , Dividend paid in current FY. Can anyone throw light on how to treat these while making Consolidated Balance and Capital profit and revenue profit.

regards,

Shalini Ahuja

Mumbai

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5 Replies

Ashish Ojha (Chartered Accountant) (469 Points)
Replied 24 November 2009

When one company acquires other, it pays some consideration... Now after paying consideration it gets an entity which already has profits in its accounts....

Now logic is that this profits has not been earned by the aquirer but purchased by it... so these should not be added to profit & loss account.. This is adjusted in Goodwill or Capital Reserve.

Here comes the necessity of seggregating Profit into pre & post acquision

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Ashish Ojha (Chartered Accountant) (469 Points)
Replied 24 November 2009

1. Proposed Dividends - As Holding is the owner of the Subsy now all its profits (Holding's Share) whether declared or not belong to Holding.. but there are some other share holders also in the subsy, if Subsy proposed Dividend then their share of dividend is now a liability, so this should be adjusted.

2.Interim Dividend- Dividend declared during the year, which relates to current year profits should be adjusted according to date of acquisition.

3. Bonus shares- should be adjusted according to frm which profits pre or post they are issued.

Patricia (C.S.- Professional) (sdd) (197 Points)
Replied 25 November 2009

Hi. Ashish. Thanks a lot for reply. I 've gone thru various books but the below lines and how to apply logic is NOT clear :- Pl read the following

" P&A/c of Holding Co. includes Interim Dividend recd. from Sub Co. Interim Dividend @ 10% was @ 10% and declared by S.Co. after the Date of Acquisition. [ 1/7/09] .

Balance in P&L A/c as at 1/4/09 in sub.Co. stood at Rs 56000. An interm Dividend @ 10% was paid out of this balance after 1/7/09.

How to treat this ??

Regards,

Shalini.

Mumbai

Ashish Ojha (Chartered Accountant) (469 Points)
Replied 25 November 2009

just make the following adjustment in the books of holding -

Profit & loss A/c ....Dr.

To goodwill ( cost of control)

this is so becuse that part of profit was pre acquisition, which has to be adjusted in goodwill or capital reserve...

the point to be noted is the amount of adjustment... only adjust the amount of dividend recievable or received by the holding not declared by the subsy.. there may be difference in two amounts if it is not a fully owned subsy...

wish u all the best..