Hi all, in FRA practices this seems to be a frequently asked comparison
contribution from investment : calculated as share% times the dividend paid out by the subsiduary ± change in share if applicable
equity income : calculated as net income *share% - depreciation of fix asset excess of purchase price *share% - unrealized profit *share%
ending period value of original investment : calculated as purchase price + equity income - dvidend payout by subsiduary * share%
I wonder is my summary correct? and why is contribution from investment calculated as a share of dividend and how is this different from equity income? I wonder if there is a fundamental rule to distinguish those three items?
I am not sure if exactly this is doubtful to you, but here is my sample of booking entries from invest. to associates by equity method (be aware that in real situation entries below could be shown by more transitional accounts) . Hope it will help.
Invest in associates
Example invest 30 % shares in XYZ company with MCap of 100.000.000. Equity method applies.
Entries in ledger of shareholder
= debit
= credit
Year 1
DR Non- current asset (investment into XYZ) CR Cash
30.000.000 - 30.000.000
Year 2 XYZ has Net income of 10.000.000 and paid dividend of 1.000.000
DR Non- current asset (investment into XYZ)
(30 % 10.000.000) + 3.000.000 CR Income from investments in associates - (30 % 1.000.000) dividend - 3.000.000 CR - 300.000 DB Cash + 300.000 Balance Non-current asset (inv.into XYZ) at the end of Y2 Cash + Income from investments into associates 32.700.000 -32.700.000