Share of profit of associates and joint ventures

[Pursuitofknowledge]

Hi Buddies,

Since we are on this topic, I will like to ask a question relating to financial reporting on subsidiary.

I'm looking at New Toyo and they own 54% of tien wah press thus TWP is considered their subsidiary and they have consolidated their financial report. Do I have to adjust the profit reported to 54%?

Ps:I know New Toyo doesn't breakdown the share of profit from TWP. Though they have provided the respsective segment result.

[cfa]

Hi Buddies,

Since we are on this topic, I will like to ask a question relating to financial reporting on subsidiary.

I'm looking at New Toyo and they own 54% of tien wah press thus TWP is considered their subsidiary and they have consolidated their financial report. Do I have to adjust the profit reported to 54%?

Ps:I know New Toyo doesn't breakdown the share of profit from TWP. Though they have provided the respsective segment result.

Look at the profit after minority interests.

[GPD]

Associate earnings without cash returns is as good as nothing since these are just non-cash charges to the P&L but to have a clearer picture will depend on several factors:

- how long has the associate/JV been operating? If it's in the early stages, it means it will need a few more years before you can see cash returns.
- if it has been operating for a while (i.e. more than 5 years), then you should try to understand what is holding them back from getting the cash dividends. (i.e. associate needs cash to expand?). Logically, parent co should want to enjoy some form of cash returns else this is a bad investment.
- associate & JVs could also be a good way for management/majority shareholder to move money out of the company without sharing it with opmi. Do you see the parent co keep making substantial investment in the associate? Either way, a business is bad if it needs external capital all the time.
- on the parent co, how much of associate earnings does it attribute to consolidated bottom line? If it's significant and there is nil cash returns, then it will be conservative to adjust it out.

That's pretty much what I think. I thought they should only book a profit from their invested assoc and JV when they received the cash dividend. Booking share of assoc and JV's profit seems to be windows dressing their bottomline.

Should the parent only book the profit when it receives cash dividend from its subsidiaries?

What kind of accounting is that? This goes back to whether accounting should be cash based or not. Should there be receivable on the balance sheet since only cash should be recorded as revenue?

I accept the accounting point of view but this line in the P/L can be misused. Say, if the invested assoc doesn't have a dividend policy and doesn't pay a single cent for ten years, this is going make the P/L looked overly optimistic for a long time.

[GPD]

Hi Buddies,

Since we are on this topic, I will like to ask a question relating to financial reporting on subsidiary.

I'm looking at New Toyo and they own 54% of tien wah press thus TWP is considered their subsidiary and they have consolidated their financial report. Do I have to adjust the profit reported to 54%?

Ps:I know New Toyo doesn't breakdown the share of profit from TWP. Though they have provided the respsective segment result.

Look at the profit after minority interests.

I thought this might be the case. Another question: Since share profit from assoc/JV are accounting profit, are they taxable? Another question. Does anyone knows if these share profit are before or after tax?

[Pursuitofknowledge]

Hi Buddies,

Since we are on this topic, I will like to ask a question relating to financial reporting on subsidiary.

I'm looking at New Toyo and they own 54% of tien wah press thus TWP is considered their subsidiary and they have consolidated their financial report. Do I have to adjust the profit reported to 54%?

Ps:I know New Toyo doesn't breakdown the share of profit from TWP. Though they have provided the respsective segment result.

Look at the profit after minority interests.

Thanks CFA for pointing out!

[Boon]

Hi Buddies,

Since we are on this topic, I will like to ask a question relating to financial reporting on subsidiary.

I'm looking at New Toyo and they own 54% of tien wah press thus TWP is considered their subsidiary and they have consolidated their financial report. Do I have to adjust the profit reported to 54%?

Ps:I know New Toyo doesn't breakdown the share of profit from TWP. Though they have provided the respsective segment result.

Look at the profit after minority interests.

I thought this might be the case. Another question: Since share profit from assoc/JV are accounting profit, are they taxable? Another question. Does anyone knows if these share profit are before or after tax?

Please refer to the accounting treatment of Assoc/JV on page 53 to 55 of the following document from EY.

http://www.ey.com/Publication/vwLUAssets...ited_2012/$FILE/XYZ%20Holdings%20Singapore%20Limited%20-%202012.pdf

[weijian]

I thought this might be the case. Another question: Since share profit from assoc/JV are accounting profit, are they taxable? Another question. Does anyone knows if these share profit are before or after tax?

Please refer to the accounting treatment of Assoc/JV on page 53 to 55 of the following document from EY.

http://www.ey.com/Publication/vwLUAssets...ited_2012/$FILE/XYZ%20Holdings%20Singapore%20Limited%20-%202012.pdf

Assoc/JV's reported share of profits on the parent's P/L are already after tax. Hence the profit should not be taxed on parent's side again.

Here is a nice working example:
http://www.cimaglobal.com/Documents/Stud...epart2.pdf

[dxdx]

Was wondering how 'minority interests' are consolidated in the cashflow statements:

My understanding is that it is placed under its own line item in 'Investing activities', and only the change (ie, increase/decrease) is reported. Is this correct?

Also, if we extend this question to 'Associates and JVs', how is the consolidation done? Are the share of profits are parked under 'investments' also, and what then happens to dividends declared?

[Nick]

Was wondering how 'minority interests' are consolidated in the cashflow statements:

My understanding is that it is placed under its own line item in 'Investing activities', and only the change (ie, increase/decrease) is reported. Is this correct?

Also, if we extend this question to 'Associates and JVs', how is the consolidation done? Are the share of profits are parked under 'investments' also, and what then happens to dividends declared?

The cash-flow statement assumes everything is fully consolidated so there is no cash-flow attributable to MI (unlike the P&L statement).

Using CM Pacific as an example (since it has both attributes), dividends from JV and associates are accounted for under Investing Cash-flow. Dividends paid to Minority Interests falls under the Financing Cash-flow.

[dxdx]

Was wondering how 'minority interests' are consolidated in the cashflow statements:

My understanding is that it is placed under its own line item in 'Investing activities', and only the change (ie, increase/decrease) is reported. Is this correct?

Also, if we extend this question to 'Associates and JVs', how is the consolidation done? Are the share of profits are parked under 'investments' also, and what then happens to dividends declared?

The cash-flow statement assumes everything is fully consolidated so there is no cash-flow attributable to MI (unlike the P&L statement).

Using CM Pacific as an example (since it has both attributes), dividends from JV and associates are accounted for under Investing Cash-flow. Dividends paid to Minority Interests falls under the Financing Cash-flow.

Thanks very much