Can someone tell me why we subtract the dividends received when we calculate the investment value in an affiliate?
Dividends received are considered a return _ of _ investment, not a return on investment.
Why? Because that’s what accountants decided, that’s why.
i think i got it.
I will use the Retained Earnings to calculate the investment value
How, exactly?
lets say A owns 20% of B . The purchase price of B was $100. B made NI of $40 and paid $10 in dividends (RE=$30)
Investment value in A’s financial statement is 100 +0.2*$30=$106
$30 is not (necessarily) B’s Retained Earnings.
It might be B’s _ change in _ RE.
yes, you are right because the actual retained earnings include all the previous earnings.
Exactly!
That’s why I was puzzled when you said you’d use RE.
gotcha. Thank you!