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Investment accounts - Pre acqu prfts

Swathi (Student) (66 Points)

06 October 2010

A query reg pre aqu pft pls help......

"As on 1.4.04 shares held 20000 with face val Rs10 and book value Rs16 per share, purchased during the year on 1.6.04 5000shares at Rs14 per share....dividend for the year end 31st Mar'04 declared at 15%"

My doubt is " should we account for pre acq dividend in respect of those 5000 shares bought during the current year whereas dividend is declared for the prev year when it is not possessed "....if so why...and how should we account for it pls explain............?

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6 Replies

kalyan (Manager - Accounts) (99 Points)
Replied 06 October 2010

As per AS 13, the concept of reducing the cost of Investment comes only when dividend/interest clearly represents the recovery of cost. Generally dividend amount will be reduced from the cost in the following two cases

1. when the investments are purchased on cum dividend basis.

2. when the dividend is declared out of pre acqisition profits.

For your easy reference, I am reproducing the Para 12 of AS 13 here:

Interest, dividends and rentals receivables in connection with an investment are generally regarded as income, being the return on the investment. However, in some circumstances, such inflows represent a recovery of cost and do not form part of income. For example, when unpaid interest has accrued before the acquisition of an interest-bearing investment and is therefore included in the price paid for the investment, the subsequent receipt of interest is allocated between pre-acquisition and post-acquisition periods; the pre-acquisition portion is deducted from cost.When dividends on equity are declared from pre-acquisition profits, a similar treatment may apply. If it is difficult tomake such an allocation except on an arbitrary basis, the cost of investment is normally reduced by dividends receivable only if they clearly represent a recovery of a part of the cost.

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Swathi (Student) (66 Points)
Replied 07 October 2010

thank u for ur reply........

i have one more doubt reg this..

What should we consider while declaration of dividend, i.e in respect of whom will it be declared

the names of those persons appearing in the register on date of declartion or order

(OR)

those appearing in the register as on 31st Mar

kalyan (Manager - Accounts) (99 Points)
Replied 08 October 2010

In case of annual dividend, the persons who are members as on the date of Annual General Meeting will be eligible to receive dividend. For the said purpose, a company may close Register of Members for the purpose of ascertaining persons who are eligible for dividend.

Swathi (Student) (66 Points)
Replied 09 October 2010

thank u

Gaurav Bisht (CA FINAL Student) (22 Points)
Replied 25 March 2011

Hi,

can anybody tell me that where can i get the notes of invetsment accounting from????

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Adon Paul (student) (21 Points)
Replied 26 March 2011

Yes, you should account for pre acq dividend in respect of those 5000 shares bought during the current year whereas dividend is declared for the prev year when it is not possessed.

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