ACCA Applied Knowledge · Financial Accounting · Subsidiaries
Ridge Co owns 90% of Moss Co. At the reporting date Moss declared and paid a dividend of $50,000 during the post-acquisition period, and the dividend has been recorded correctly in both companies' individual accounts. Which statement about the treatment on consolidation is correct?
The intra-group dividend of $45,000 is eliminated on consolidation, so it has no effect on group profit, while the $5,000 paid to the non-controlling interest reduces NCI in equity. Including the dividend income in group profit would double count Moss's earnings already consolidated line by line.
- AThe dividend received by Ridge is eliminated against Moss's dividend paid, and only the NCI share of the dividend appears as a reduction in NCICorrect
- BRidge's $45,000 dividend income is included in consolidated profit
- CThe full $50,000 dividend is deducted from consolidated retained earnings
- DThe $5,000 NCI dividend is added to consolidated retained earnings
Explanation
Ridge's 90% share ($45,000) is intra-group: it cancels against the dividend paid by Moss, so there is no effect on group profit. The $5,000 paid to NCI is a distribution to outside owners and reduces NCI. Including the dividend income in consolidated profit would double count profit already included in Moss's results.
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