How do you account for an intragroup dividend when the subsidiary has non-controlling interest (NCI)? Walk through the elimination entry and the impact on NCI and retained earnings.
A core Group Accounting interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
The dividend paid by the subsidiary to the parent is eliminated in consolidation. The elimination entry: debit dividend income (parent) and credit dividends declared (subsidiary). However, the portion of the dividend attributable to NCI is not eliminated; instead, it is reflected as a reduction in NCI. Specifically, the NCI share of the subsidiary's profit is recognized in NCI, and the dividend paid to NCI reduces NCI. The parent's dividend income is eliminated entirely, and the NCI is adjusted for its share of the dividend.
WHAT INTERVIEWERS LISTEN FOR
- ✓Eliminate dividend income and dividends declared
- ✓NCI share of dividend reduces NCI
- ✓No impact on group retained earnings
COMMON MISTAKES
- ✗Eliminating NCI portion of dividend
- ✗Ignoring NCI in dividend elimination
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