ACCA Strategic Professional · Strategic Business Reporting (International) · Group accounting including statements of cash flows
Castor Group's consolidated profit before tax includes a $2m share of profit of an associate, and the group received a dividend of $0.5m from the associate during the year. The group uses the indirect method under IAS 7. Which statement describes the correct treatment?
Remove the full $2m share of associate profit as a non-cash item in the indirect reconciliation, then show the $0.5m dividend actually received as a separate inflow, classified consistently as operating or investing. The equity-accounted profit is not cash, but the dividend is.
- ADeduct $2m in the operating reconciliation and show the $0.5m dividend received as an investing (or operating, per policy) inflowCorrect
- BDeduct $1.5m in the operating reconciliation and show no separate dividend inflow
- CLeave the $2m in operating profit and show the $0.5m dividend as a financing inflow
- DDeduct $0.5m in the operating reconciliation and show the $2m as an investing inflow
Explanation
The share of associate profit is non-cash, so the full $2m is removed from profit before tax in the reconciliation. The actual cash received, $0.5m, is shown separately as dividends received, which IAS 7 allows in operating or investing activities if applied consistently. Netting the two figures hides the cash flow.
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