Accounting Method for Preferred Dividends of Non-Controlling Shareholders

Accounting method for preferred dividends of non-controlling shareholders (illustrative image)

Circular 202/2014/TT-BTC stipulates the accounting method for preferred dividends of non-controlling shareholders as follows:

If the subsidiary has cumulative preferred dividends from previous periods that have not been paid, when preparing the consolidated financial statements, the parent company must separately account for the cumulative preferred dividends of the subsidiary not yet paid to the non-controlling shareholders before determining the ownership portion of common shareholders, by recording:

- Debit Retained Earnings after Tax;- Credit Non-controlling Interest.

The post-tax interests of non-controlling shareholders arising in the period are determined as the sum of preferred dividends plus (+) the proportionate share in the profit (or loss) after tax on the income statement of the subsidiary allocated to non-controlling shareholders. The journal entry to separate the non-controlling interest arising in the period is made as stipulated in Section 4 of this Chapter.

Additionally, Article 25 of this Circular also specifies the method to adjust the reward and welfare fund not yet deducted from the retained earnings after tax as follows:

If the financial statements of the subsidiary used for consolidation have not yet deducted the reward and welfare fund according to the charter, when preparing the consolidated financial statements, the parent company estimates the amount of the reward and welfare fund that the subsidiary must deduct for the period before determining the ownership portion of the parent shareholders and non-controlling shareholders in the retained earnings after tax, by recording:

- For the reward and welfare fund portion corresponding to the parent company's ownership in the after-tax profit of the subsidiary, record:

- Debit Retained Earnings after Tax;- Credit Reward and Welfare Fund.

- For the reward and welfare fund portion corresponding to the non-controlling shareholders' ownership, record:

- Debit Non-controlling Interest;- Credit Reward and Welfare Fund.

If the financial statements of the subsidiary used for consolidation have already deducted the reward and welfare fund according to the charter, when preparing the consolidated financial statements, the company adjusts the non-controlling interest corresponding to the non-controlling shareholders' ownership, by recording:

- Debit Non-controlling Interest;- Credit Reward and Welfare Fund.

Details can be found in Circular 202/2014/TT-BTC effective from February 27, 2015.

Ty Na

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