for parent’s company’s NI, if parent has 25% of associate share, associate has 100 NI and issue 40 dividend, why parent’s NI is increased only 25? why we didn’t consider dividend income? for investment account in balance sheet, do we increase 25? I think we should reduce dividend *25%, thus change in investment should be 25-40*25%. Am I right?
Counting dividend would be double counting. *I think*
> for parent’s company’s NI, if parent has 25% of associate share, associate has 100 NI and issue 40 dividend, why parent’s NI is increased only 25? why we didn’t consider dividend income? We already did: 25% of $40 + 25% of remaining NI after dividend was distributed ($60) = $25. > change in investment should be 25-40*25%. Yes.
thanks
Dividends are paid from NI, so if we already have a 25% of the 100NI we get 25. However, 40/100 are issued as a dividend, so if we were to also take 25% of the dividend (another 10) we would double count that money. Like the previous poster put it, you can simply break down NI into the Div. and Ret. Earn. components and take the pro rata share of each and sum it up (here: 25% of 40 div. and 25% of 60 ret.earn.). Per simple math you arrive at the same number you get if you just take 25% of the total NI. Hence, dividends are already accounted for. The adjustment to the investment account however needs to be done as stated.