ACCA Applied Knowledge · Financial Accounting · Associates
Harper owns 40% of Ines, an associate, for the whole year. Ines reported profit before tax of $300,000 and tax of $60,000. Harper received a dividend of $30,000 from Ines. What share of profit of associate is shown in Harper's consolidated statement of profit or loss?
The share of profit of associate is $96,000. Take the associate's profit after tax of $240,000 and multiply by the 40% holding. Profit before tax is not used, and the dividend received does not reduce the income statement figure.
- A$96,000Correct
- B$120,000
- C$84,000
- D$72,000
Explanation
The share is based on profit after tax: ($300,000 - $60,000) = $240,000 x 40% = $96,000. $120,000 wrongly uses profit before tax. $84,000 wrongly deducts the $12,000 of tax-free... more precisely it subtracts the dividend of $30,000 from $96,000 and is wrong because dividends reduce the investment in the statement of financial position, not the profit share. $72,000 deducts the dividend from $102,000 or uses an arbitrary figure and is wrong.
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