Old Profits, New Dividend | Why This Dividend Is Not Income | Pre-Acquisition Profits | AS 13 |

When a dividend is received out of pre-acquisition profits, it is not recognised as income in the books of the investor. The logic is simple. Suppose a company had already earned profits before you purchased its shares. When you acquire the investment, the purchase price effectively includes your share of those accumulated profits. If the company later distributes those same profits as dividend, you are not earning a new income. Instead, you are recovering a part of the amount that you originally paid for the investment. Therefore, the dividend is not credited to the Profit & Loss Account. Instead, it reduces the carrying amount of the investment. Normal Dividend: Bank A/c Dr. To Dividend Income A/c Dividend out of Pre-Acquisition Profits: Bank A/c Dr. To Investment A/c The key principle to remember is: Pre-Acquisition Profit Dividend = Reduction in Investment Cost Post-Acquisition Profit Dividend = Income in Profit & Loss Account This is one of the most important conceptual areas under AS 13 because it distinguishes between a return on investment and a recovery of investment cost. #CAFinal #CAInter #AS13 #DividendIncome #PreAcquisitionProfit #InvestmentAccounting #AccountingStandards #FinancialAccounting #CAStudents #CommerceStudents #Accounts #AccountingEducation #CharteredAccountant #FinanceEducation #ProfessionalStudies #AccountingConcepts #CorporateAccounting #FinancialReporting #ExamPreparation #AccountingRevision #LearnAccounting #SudarshanAgrawalClasses #CACoaching #AccountingMadeEasy #FinanceStudents