Depending on when a dividend is announced by the subsidiary will determine if the dividend was pre-control or post-control. If a dividend was announced before takeover, then the dividend is pre-control (before the parent company took control). Pre-control can be described as the owner equity of a subsidiary existing at the moment the subsidiary becomes controlled or existing before an acquisition of the shared of an entity that is already controlled. Example: "X Company A purchases company B in 2002 for $25 million "X Company B gives shareholders 10 million in dividends from profits in 2001.

In this example Company A took no part in the profits made by company B because the takeover was 1 year after the dividends were declared. Dividend revenue is only included in post control (after the company has taken over) therefore for Company B! |s profits are pre-control dividends. As Company A has become the controlling parent over B the net cost of the purchase of B is now $15 million. Effective Cost of Investment = Original Outlay less The receipt of dividends from pre-control equities. The reason why a controlling parent does not include the dividend as an item of revenue is because pre-control profits are not part of the consolidated owner! |s equity. This dividend represents partial refund of the investment cost, which was paid fro past profits and reserves, as well as for the share capital.

Company A had no part in the profits for 2001, because the takeover occurred one year later. In this case the dividends are seen to reduce the investment cost rather than increase Dividend Revenue. Subsidiary! |s Books DR P&L Appropriation X CR Cast at Bank X Parent! |s Books DR Cash at Bank X CR Investment in Subsidiary X Acquisition Analysis: (i) Acquisition Analysis: CPE Ltd At 30 April 20 x 9: Fair Value of Identifiable Net Assets (INA) = $6000 - Share capital $4000 - Reserves $0 - Retained profits $2000 - Dividend payable $0 $6000 Cost of Acquisition = $6500 Goodwill = $500 Ammortisation = $25 p. a (ii) Acquisition Analysis: PDQ Ltd At 30 April 20 x 9: Fair Value of identifiable Net Assets (INA) = $6000 - Share capital $3000 - Reserves $1500 - Retained profits $1000 - Dividend payable $500 $6000 Cost of Acquisition = $6500 Goodwill = $500 Ammortisation = $25 p. a Assuming Goodwill was a mortised for 20 years Straight Line in accordance with AASB 1013: Accounting For Goodwill.

Consolidation Adjustment (In Bach's Books) (1) At 30 April 20 X 9 (i) Acquirement CPE Ltd Retained profits DR $2000 Share capital DR $4000 Reserves DR $0 Dividend payable DR $0 Goodwill DR $500 Shares in CPE Ltd CR $6500 (ii) Acquirement of PDQ Ltd Retained profits DR $1000 Share capital DR $3000 Reserves DR $1500 Dividend payable DR $500 Goodwill DR $500 Shares in PDQ Ltd CR $6500 (2) At 30 May 20 X 9 (i) CPE Ltd Operating Profit Before Income Tax DR $2. 09 Retained profits DR $2000 Share capital DR $4000 Reserves DR $0 Goodwill DR $497. 91 Dividend Paid CR $500 Shares in CPE Ltd CR $6000.