Question

a. Explain the treatment of dividends paid from the associate under the equity method of accounting if (i) the investor is not a parent and does not prepare consolidated financial statements and (ii) the investor is a parent and prepares consolidated financial statements.

b. P Ltd owns 100% of the shares of S Ltd. P Ltd provided S Ltd with management services for which they havecharged S Ltd $25,000 during the current financial year. Of this amount, $4,500 was outstanding at year end. Theadjusting consolidation entries at the end of the period were:

Management Fees	Dr	$25,000
Management Expense	Cr		$25,000

Accounts Payable	Dr	$4,500
Accounts Receivable	Cr		$4,500

Required

1. Explain why the above entries are made, noting the adjustment to each account separately.
2. Explain why there is no tax adjustment in regard to the entry above.