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If dividend is declared by a subsidiary company out of its revenue profits, how does it affect the consolidated balance sheet of the holding company?
- a)Decrease the value of investments in subsidiary.
- b)Increase the value of P&L Account.
- c)Increase the value of cash or bank balances.
- d)Decrease the value of minority interest.
Correct answer is option 'C'. Can you explain this answer?
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If dividend is declared by a subsidiary company out of its revenue pro...
Understanding Dividend Declaration by a Subsidiary
When a subsidiary company declares a dividend from its revenue profits, it has specific implications for the consolidated balance sheet of the holding company.
Impact on Consolidated Balance Sheet
- Increase in Cash or Bank Balances:
When a subsidiary declares a dividend, the holding company typically receives cash. This inflow of cash increases the cash or bank balances in the consolidated balance sheet.
- Decrease in Value of Investments in Subsidiary:
The holding company may report a decrease in its investment value in the subsidiary, as dividends represent a distribution of profits. However, this does not directly affect the consolidated balance sheet since the cash inflow offsets the reduction.
- Increase in P&L Account:
The consolidated Profit and Loss account reflects the income from the subsidiary, but the immediate effect of the dividend declaration does not directly increase P&L since it's a distribution of profits already recognized.
- Decrease in Value of Minority Interest:
If the holding company owns less than 100% of the subsidiary, dividends paid out reduce the profits available for distribution to minority shareholders. However, this decrease is not directly reflected in the consolidated balance sheet.
Conclusion
The correct answer is option 'C' because the declaration of a dividend increases the holding company’s cash or bank balances, enhancing liquidity. This cash inflow positively impacts the consolidated assets, reflecting the operational success of the subsidiary and its contribution to the overall financial health of the group.
When a subsidiary company declares a dividend from its revenue profits, it has specific implications for the consolidated balance sheet of the holding company.
Impact on Consolidated Balance Sheet
- Increase in Cash or Bank Balances:
When a subsidiary declares a dividend, the holding company typically receives cash. This inflow of cash increases the cash or bank balances in the consolidated balance sheet.
- Decrease in Value of Investments in Subsidiary:
The holding company may report a decrease in its investment value in the subsidiary, as dividends represent a distribution of profits. However, this does not directly affect the consolidated balance sheet since the cash inflow offsets the reduction.
- Increase in P&L Account:
The consolidated Profit and Loss account reflects the income from the subsidiary, but the immediate effect of the dividend declaration does not directly increase P&L since it's a distribution of profits already recognized.
- Decrease in Value of Minority Interest:
If the holding company owns less than 100% of the subsidiary, dividends paid out reduce the profits available for distribution to minority shareholders. However, this decrease is not directly reflected in the consolidated balance sheet.
Conclusion
The correct answer is option 'C' because the declaration of a dividend increases the holding company’s cash or bank balances, enhancing liquidity. This cash inflow positively impacts the consolidated assets, reflecting the operational success of the subsidiary and its contribution to the overall financial health of the group.
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If dividend is declared by a subsidiary company out of its revenue pro...
Dividend declared out of subsidiary company's revenue profits will increase the value of cash or bank balances in the consolidated balance sheet.
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If dividend is declared by a subsidiary company out of its revenue profits, how does it affect the consolidated balance sheet of the holding company?a)Decrease the value of investments in subsidiary.b)Increase the value of P&L Account.c)Increase the value of cash or bank balances.d)Decrease the value of minority interest.Correct answer is option 'C'. Can you explain this answer?
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If dividend is declared by a subsidiary company out of its revenue profits, how does it affect the consolidated balance sheet of the holding company?a)Decrease the value of investments in subsidiary.b)Increase the value of P&L Account.c)Increase the value of cash or bank balances.d)Decrease the value of minority interest.Correct answer is option 'C'. Can you explain this answer? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about If dividend is declared by a subsidiary company out of its revenue profits, how does it affect the consolidated balance sheet of the holding company?a)Decrease the value of investments in subsidiary.b)Increase the value of P&L Account.c)Increase the value of cash or bank balances.d)Decrease the value of minority interest.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If dividend is declared by a subsidiary company out of its revenue profits, how does it affect the consolidated balance sheet of the holding company?a)Decrease the value of investments in subsidiary.b)Increase the value of P&L Account.c)Increase the value of cash or bank balances.d)Decrease the value of minority interest.Correct answer is option 'C'. Can you explain this answer?.
If dividend is declared by a subsidiary company out of its revenue profits, how does it affect the consolidated balance sheet of the holding company?a)Decrease the value of investments in subsidiary.b)Increase the value of P&L Account.c)Increase the value of cash or bank balances.d)Decrease the value of minority interest.Correct answer is option 'C'. Can you explain this answer? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about If dividend is declared by a subsidiary company out of its revenue profits, how does it affect the consolidated balance sheet of the holding company?a)Decrease the value of investments in subsidiary.b)Increase the value of P&L Account.c)Increase the value of cash or bank balances.d)Decrease the value of minority interest.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If dividend is declared by a subsidiary company out of its revenue profits, how does it affect the consolidated balance sheet of the holding company?a)Decrease the value of investments in subsidiary.b)Increase the value of P&L Account.c)Increase the value of cash or bank balances.d)Decrease the value of minority interest.Correct answer is option 'C'. Can you explain this answer?.
Solutions for If dividend is declared by a subsidiary company out of its revenue profits, how does it affect the consolidated balance sheet of the holding company?a)Decrease the value of investments in subsidiary.b)Increase the value of P&L Account.c)Increase the value of cash or bank balances.d)Decrease the value of minority interest.Correct answer is option 'C'. Can you explain this answer? in English & in Hindi are available as part of our courses for B Com.
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If dividend is declared by a subsidiary company out of its revenue profits, how does it affect the consolidated balance sheet of the holding company?a)Decrease the value of investments in subsidiary.b)Increase the value of P&L Account.c)Increase the value of cash or bank balances.d)Decrease the value of minority interest.Correct answer is option 'C'. Can you explain this answer?, a detailed solution for If dividend is declared by a subsidiary company out of its revenue profits, how does it affect the consolidated balance sheet of the holding company?a)Decrease the value of investments in subsidiary.b)Increase the value of P&L Account.c)Increase the value of cash or bank balances.d)Decrease the value of minority interest.Correct answer is option 'C'. Can you explain this answer? has been provided alongside types of If dividend is declared by a subsidiary company out of its revenue profits, how does it affect the consolidated balance sheet of the holding company?a)Decrease the value of investments in subsidiary.b)Increase the value of P&L Account.c)Increase the value of cash or bank balances.d)Decrease the value of minority interest.Correct answer is option 'C'. Can you explain this answer? theory, EduRev gives you an
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