Dividend entry liquidating birminghamlocaldating com
Rectification of Error Relating to Dividend from Subsidiary Company: In a question on consolidation of balance sheets, it may be given that the holding company has received dividend from the subsidiary company out of pre-acquisition profits and has credited its Profit & Loss Account with the amount so received. Unless the facts of the case point otherwise, it should be assumed that proposed dividend is out of post acquisition profits. On 10th January, 2012 it declared an interim dividend @ 8% per annum for full year. credited the final dividend of 10% as well as interim dividend of 8% to its Profit and Loss Account. On 31 St March, 2012 the balance sheets of the two companies stood as follows:— Illustration 4: H Ltd. No balance sheet was prepared on the date of acquisition. as at 31st March, 2011 and 31st March, 2012 were as follows: Illustration 5: H Ltd. The balance sheets of both the companies as at 31st March, 2012 were as follows: Treatment of Depreciation in Respect of a Change in the Value of a Fixed Asset of the Subsidiary: If the value of a fixed asset of the subsidiary company is changed with retrospective effect after depreciation has been provided for full year, depreciation in respect of increase or decrease in the value of the fixed asset has to be adjusted as a revenue profit or loss. It means an error has been committed in as much as a capital receipt has been treated as an income. 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. acquired 90 per cent of the equity shares in S Ltd. acquired 80 per cent of both classes of shares in S Ltd. However, the IRS has stated that a shareholder that assumes such a liability will receive capital loss treatment when the liability is ultimately paid by the shareholder (Rev. The corporation recognizes gain or loss for the receivable when it distributes the receivable to the shareholder.The shareholder does not recognize and report additional income as it collects the receivable because the shareholder has already included this amount in its gain or loss computation when it received the liquidating distribution. The full amount (100%) of all distributions made after basis has been recovered are recognized as gain.The correct journal entry for receipt of dividend out of pre-acquisition profits is as follows:— Illustration 1: H Ltd. for Rs 1,70,000 on April 1,2011 on which date S Ltd’s Profit & Loss Account showed a credit balance of Rs 53,400. declared a dividend of 10% for the year ended 31st March, 2011. has a contingent liability of Rs 2,500 in a suit pending in a court of law.Then, the shareholders are treated as exchanging their stock for the FMV of the assets distributed in complete liquidation, with the resulting gains or losses at the shareholder level.When determining whether a closely held corporation should be liquidated, the tax consequences to the shareholders should be considered.
If the corporation distributes its assets for later sale by the shareholders, the assets generally “come out” of the corporation with a basis equal to FMV (and with the related recognition of gain or loss under Sec.
If the stock is a capital asset in the shareholder’s hands, the transaction qualifies for capital gain or loss treatment.
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For taxpayers in the 10% or 15% ordinary tax brackets, there is no tax on most long-term capital gains and dividends realized after 2009 and before 2013.
Caution: Shareholders may want to evaluate the sale or disposal of stock by the end of 2012 to take advantage of the 15% dividend tax rate, lower individual income tax rates, and lower capital gain tax rates set to expire on Dec. Guidance on the tax treatment of these items in 2013 and subsequent tax years is uncertain, so practitioners should watch for future legislation.