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:

Hippocampus

A major component of the brain in humans and other vertebrates, associated with memory formation and spatial navigation.

Prefrontal Cortex

The part of the frontal lobes of the brain located just behind the forehead that is involved in decision making, problem-solving, and controlling behavior.

Temporal Lobes

Regions of the brain located beneath the temples, responsible for processing auditory information and involved in memory and emotion.

Short-term Memories

Memory stored for a brief period of time, usually for about 20 to 30 seconds, that holds a small amount of information before it is forgotten or transferred to long-term memory.