ACCA Applied Knowledge · Financial Accounting · Associates
Hill owns 40% of Dale, an associate. For the year Dale's profit before tax was $300,000, tax was $60,000, and Dale paid dividends of $50,000. What amount of share of profit of associate appears in Hill's consolidated statement of profit or loss?
The amount is $96,000, which is 40% of Dale's profit after tax of $240,000. The share is taken after tax, and dividends paid are not deducted. Using profit before tax would give $120,000, which is incorrect.
- A$96,000Correct
- B$120,000
- C$100,000
- D$76,000
Explanation
The share is based on profit after tax: 300,000 - 60,000 = 240,000. 40% x 240,000 = 96,000. $120,000 wrongly uses profit before tax. Dividends do not affect the share of profit.
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