Unrealized Profit in Noncurrent Assets The easiest way to calculate the adjustment required is to compare the carrying amount (CA) of the asset
now with the CA that it would have been held at had the transfer never occurred:
CA at reporting date
X
CA at reporting date if intra-group transfer had not occurred
(X)
Adjustment required
X
The calculated amount should be:
(1) deducted when adding across P’s non-current assets + S’s non-current assets
(2) deducted in the retained earnings of the seller
Dividends When a subsidiary company pays a dividend during the year the accounting treatment is not difficult.
Suppose S Co, a 60% subsidiary of P Co, pays a dividend of Rs.1,000 on the last day of its accounting
period. Its total reserves before paying the dividend stood at Rs.5,000.
a)
Rs.400 of the dividend is paid to non-controlling shareholders. The cash leaves the group and will
not appear anywhere in the consolidated statement of financial position. This requires no adjustment
in consolidation
b)
Rs. 600 dividends received by the parent is appearing under the parent’s retained earnings. This
represents the part of post-acquisition share of retained earnings attributable to parent. Hence, we are
not going to make any adjustment to this.
c)
The remaining balance of retained earnings in S Co's statement of financial position (Rs.4,000) will
be consolidated in the normal way. The group's share (60% * Rs.4,000 = Rs.2,400) will be included
in group retained earnings in the statement of financial position; Then the total share of post-
acquisition share of retained earnings attributable to parent will become Rs.3000 (600+2,400)
d)
The non-controlling interest share (40% * Rs.4,000 = Rs.1,600) is credited to the non-controlling
interest account in the statement of financial position
.
