Interim Dividend by Subsidiary Companies

An interim dividend is a dividend payment made before a company’s annual general meeting (AGM) and the release of final financial statements. This declared dividend usually accompanies the company’s interim financial statements. The interim dividend is issued more frequently in the United Kingdom where dividends are often paid semi-annually. The interim dividend is typically the smaller of the two payments made to shareholders.

The holding company may receive interim dividend from the subsidiary company; if such an interim dividend is to be apportioned between pre-acquisition period and post-acquisition period, it should be assumed that the interim dividend has been earned evenly throughout the year.

Proposed Dividend:

On the liabilities side of the balance sheet of the subsidiary company, proposed dividend may appear. Unless the facts of the case point otherwise, it should be assumed that proposed dividend is out of post acquisition profits. Hence, holding company’s share of proposed dividend will be added to the holding company’s Profit and Loss Account whereas minority shareholders’ share will be added to minority interest.

Dividend received by the holding company from its subsidiary out of pre-acquisition profits is treated as capital receipt; the journal entry for its record being as follows:

The following points will highlight the three steps for payment of interim dividend.

(a) First, total amount of interim dividend (i.e.,% of dividend on Subsidiary’s Co.’s Share Capital) should be added with the current profit;

(b) Deduct subsidiary’s share of interim dividend from Minority Interest.

(c) Deduct Holding Company s share of interim dividend from Profit and Loss Account of holding company in the liability side of the Consolidated Balance Sheet.

In the consolidated books, the following entry will be passed:

Finance Income……….Dr.

To, Retained Earnings

(Amount of dividend paid by the subsidiary company to its parent entity)

Current Tax……………..Dr.

To, Retained Earnings