While working through Schweser problems, sometimes you need to back out the % share of the dividends paid and other times you do not need to when figuring out the income reported for the parent when using the equity method.
When do you ignore/include dividend payments when factoring subsidiary income for the parent income statement, and when do you back out the share of dividends you receive.
Thanks,
Justin
My understanding is that you only back out % share of dividends when you are asked to calculate the investment account balance. Net income is only affected by the % owned net income for the subsidiary and depreciation from excess diff btw fv and bv of assets. Can you give specific examples on where you see dividends being subtracted out of NI calculations?
dividend is treated as return of capital. associate dividend payment affect *only* the carrying amount on balance sheet holdings and does not go to income statement at all. one-liner in income statement for associate = % of net income - depreciation - double counting from up/downstream sales one liner in balance sheet for associate = initial carrying cost + % of net income - depreciation - dividend