When a subsidiary declares a final dividend payable to a parent who has a 100% interest in the subsidiary, the parent recognises a dividend receivable and the subsidiary recognises a dividend payable. In addition to the elimination of these two items on consolidation, the following items must also be eliminated:
A) Dividend revenue and Cash.
B) Dividend declared and Cash.
C) Dividend declared and Dividend revenue.
D) Dividend declared and Retained earnings.

Question

Quizplus · Accepted Answer

When a subsidiary declares a dividend payable to a parent who has a 100% interest in the subsidiary, the parent recognizes a dividend receivable and the subsidiary recognizes a dividend payable. Dividend declared and Dividend revenue must be eliminated because these are the accounts that would be affected by the payment of the dividend. Dividend declared represents the liability that the subsidiary owes to the parent, and Dividend revenue represents the income received by the parent. Therefore, these two items need to be eliminated to accurately reflect the consolidated financial statements.

When a Subsidiary Declares a Final Dividend Payable to a Parent