The Treatment of Dividends,paid by a Subsidiary,that Are Identified as Paid

question 49

Multiple Choice

The treatment of dividends,paid by a subsidiary,that are identified as paid out of pre-acquisition profits in the period they are paid is to:

• A) Capitalise the dividend in the books of the parent entity as a further investment in the subsidiary. This amount will be eliminated on consolidation.
• B) Record dividend revenue and the receipt of cash in the books of the parent entity and then test the subsidiary for impairment.
• C) Record a return of the investment in the subsidiary by decreasing the investment in the subsidiary in the books of the parent entity. The amount of the investment will be eliminated on consolidation.
• D) Record a decrease in pre-acquisition reserves or retained profits in the books of the subsidiary so that on consolidation the elimination entry will automatically eliminate the effect of the dividend.

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Definitions:

Minimum Wage

The lowest legal salary that employers can pay their workers, often established by government laws.

Mom And Pop

Small, independent, often family-owned businesses that operate on a local level, offering personalized services.

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The attributes or conditions that allow a company to produce a good or service at a lower price or in a more desirable fashion for customers than its competitors.