A parent can acquire the shares in a subsidiary on a "cum div." or an "ex div." basis. If the shares are acquired on a cum div. basis:
A)The parent is not entitled to the dividend declared at acquisition date.
B)The parent acquires two assets - the investment in the subsidiary and the dividend receivable.
C)The dividend payable recorded by the subsidiary is a liability of the group.
D)Both the dividend receivable and the dividend payable are not eliminated on the consolidated statements.

Question

Quizplus · Accepted Answer

If the shares are acquired on a cum div. basis, the parent acquires both the investment in the subsidiary and the right to receive the dividend declared at the acquisition date. Therefore, the answer is (B). Option (A) is incorrect because the parent is entitled to the dividend declared at acquisition date. Option (C) is incorrect because the dividend payable recorded by the subsidiary is not a liability of the group but a liability of the subsidiary. Option (D) is incorrect because both the dividend receivable and the dividend payable are eliminated on the consolidated statements.

A Parent Can Acquire the Shares in a Subsidiary on a "Cum