Financial Reporting · Ind AS 28 Investments in Associates and Joint Ventures

Equity Method of Accounting (Ind AS 28) for CA Final

Updated 5 October 2026 · Fact-checked

The equity method records an investment in an associate or joint venture at cost, then adjusts the carrying amount each year for your share of its profit or loss and OCI, and reduces it by dividends received. Goodwill stays inside the carrying amount. Solve it with a one-line investment account roll-forward.

Understand Equity Method of Accounting

Under the equity method, you do not take the investee's assets and liabilities line by line. You show one line in the balance sheet: investment in associate or joint venture. You show one line in profit or loss: share of profit or loss of the associate or JV.

On day one, the investment is recognised at cost. After that, the carrying amount moves with the investor's share of the investee's net assets. Your share of the investee's profit or loss increases or decreases it. Your share of the investee's OCI goes to your OCI. A dividend received is a return of the investment, so it reduces the carrying amount. It is not income.

If cost exceeds your share of the net fair value of the investee's identifiable assets and liabilities, the excess is goodwill. It is included in the carrying amount and is not amortised or shown separately. It is not tested for impairment on its own. The whole carrying amount is tested under Ind AS 36 when Ind AS 28 impairment indicators exist. If your share of net fair value is more than cost, the excess is income, included in your share of profit in the period of acquisition.

Your share of profit must be based on the investee's profit after adjusting for fair value differences at acquisition. For example, if the investee's depreciable assets were worth more than book value on the acquisition date, you need extra depreciation on that difference. You also need the investee's financial statements to use uniform accounting policies for like transactions, so adjust them if they differ from yours.

If the associate has cumulative preference shares held by others and classified as equity, you compute your share of profit after deducting those dividends, whether or not they are declared.

The investee should be as of the same reporting date as the investor. If the dates differ, the investee prepares additional statements as of the investor's date, unless impracticable. If impracticable, you can use statements of a different date, but the gap must not exceed three months, and you adjust for significant transactions in between. The length of the reporting period and any gap must be the same from period to period.

Key rules to remember

Initial carrying amount: Cost of investment (including transaction costs); Goodwill within cost is not shown separately.
Goodwill (embedded): Cost − Investor's share of net fair value of identifiable assets and liabilities; If negative, treat as income in profit share of the acquisition period.
Carrying amount roll-forward: Closing = Opening + Share of profit (or − loss) + Share of OCI − Dividends received ± Other adjustments; Use profit after fair value and policy adjustments.
Share of profit: Investor % × (Investee profit − preference dividends (cumulative, equity-classified, held by others) − extra depreciation on fair value uplift ± policy adjustments); Use the ownership interest. Deduct the preference dividend only if the associate has cumulative preference shares held by others and classified as equity. Deduct it whether or not it is declared.
Reporting date gap: Difference between reporting dates ≤ 3 months; Adjust for significant transactions or events in the gap.
Uniform policies: Adjust investee's financials to investor's policies for like transactions; Required in applying the equity method.

How to solve Equity Method of Accounting questions

Use the same sequence for any equity method question. Keep one investment account and build it up line by line.

1Confirm the investee is an associate (significant influence) or a joint venture, and that no exemption applies.
2Record the cost on the acquisition date, then compute the investor's share of net fair value of identifiable assets and liabilities to find goodwill or the excess.
3Adjust the investee's reported profit for fair value uplift depreciation or amortisation, and for any differences in accounting policy.
4Check the reporting dates. Adjust for significant events if the dates differ.
5Compute your share of profit or loss and your share of OCI from the post-acquisition period only.
6Deduct dividends received from the carrying amount. Do not credit them to profit or loss.
7Prepare the investment account to get the closing carrying amount, and show profit and OCI effects separately.
8Test for impairment if indicators exist, and state your conclusion clearly.

Quickest way: One-line investment account

When to use it: Use this when a question gives cost, profits, dividends and OCI for one or two years and asks for the closing carrying amount.

Write Cost as the first line.
Add or subtract adjusted profit × share %.
Add share of OCI.
Subtract dividends received.
Total is closing carrying amount. Do not touch goodwill separately.

Common mistakes in Equity Method of Accounting

Crediting dividend received to profit or loss.
You are used to treating dividends as income under cost accounting.
Fix: Under the equity method, credit the investment account. Dividend income is not recognised.
Taking share of the investee's full profit without fair value adjustments.
The question gives the reported profit and the fair value uplift is easy to overlook.
Fix: Find the uplift on depreciable assets at acquisition and deduct extra depreciation before applying your %.
Showing goodwill separately or amortising it.
Mixing this up with the treatment in a subsidiary's consolidation.
Fix: Keep it inside the carrying amount. It is not amortised. The whole investment is tested for impairment.
Including pre-acquisition profits in share of profit.
You apply % to the closing reserves instead of the post-acquisition change.
Fix: Use profit earned from the date significant influence started.
Ignoring differing accounting policies or reporting dates.
Students assume the investee's financials can be used as given.
Fix: Adjust for policy differences. Use the same reporting date, or a gap of at most three months with adjustments for significant events.

Worked examples

Example 1

On 1 April 2026, A Ltd buys 30% of B Ltd, an associate, for ₹60,00,000. B's net identifiable assets at fair value on that date are ₹1,60,00,000. For the year ended 31 March 2027, B reports profit of ₹40,00,000 and pays a dividend of ₹10,00,000. B has no OCI. Compute goodwill and the closing carrying amount of A's investment.

Show the solution

Share of net fair value = 30% × ₹1,60,00,000 = ₹48,00,000.
Goodwill = ₹60,00,000 − ₹48,00,000 = ₹12,00,000. It remains within the carrying amount.
Share of profit = 30% × ₹40,00,000 = ₹12,00,000.
Dividend received = 30% × ₹10,00,000 = ₹3,00,000, which reduces the investment.
Closing carrying amount = ₹60,00,000 + ₹12,00,000 − ₹3,00,000 = ₹69,00,000.

Answer: Goodwill is ₹12,00,000, included in the carrying amount. Closing carrying amount is ₹69,00,000, and A recognises ₹12,00,000 as share of profit.

Example 2

On 1 April 2026, P Ltd acquires 40% of Q Ltd for ₹1,00,00,000 when Q's net assets at book value are ₹2,00,00,000. A machine in Q has a fair value ₹20,00,000 above book value, with 5 years remaining life, straight line. Other net assets are at fair value. Q reports profit of ₹50,00,000 for the year and an OCI gain of ₹10,00,000 that relates to items that will not be reclassified to profit or loss (for example, revaluation surplus). It pays no dividend. Compute the closing carrying amount of P's investment.

Show the solution

Net fair value of Q = ₹2,00,00,000 + ₹20,00,000 = ₹2,20,00,000.
P's share = 40% × ₹2,20,00,000 = ₹88,00,000.
Goodwill = ₹1,00,00,000 − ₹88,00,000 = ₹12,00,000, within the carrying amount.
Extra depreciation = ₹20,00,000 ÷ 5 = ₹4,00,000 per year.
Adjusted profit = ₹50,00,000 − ₹4,00,000 = ₹46,00,000.
P's share of profit = 40% × ₹46,00,000 = ₹18,40,000.
P's share of OCI = 40% × ₹10,00,000 = ₹4,00,000. It is shown in P's OCI as an item that will not be reclassified to profit or loss.
Closing carrying amount = ₹1,00,00,000 + ₹18,40,000 + ₹4,00,000 = ₹1,22,40,000.

Answer: P recognises ₹18,40,000 in profit or loss and ₹4,00,000 in OCI (an item that will not be reclassified to profit or loss). The closing carrying amount is ₹1,22,40,000.

Exam tips

Show the investment account as a clean roll-forward. Examiners give marks for each line, so label each one.
State the treatment of dividends in words, because many students lose marks on that point alone.
Always check for fair value uplift and policy differences before taking your share of profit.
For theory questions on reporting dates, quote the three-month limit and the need to adjust for significant events.
Do not amortise goodwill. Say explicitly that it is included in the carrying amount.

Practice questions from Ind AS 28 Investments in Associates and Joint Ventures

Equity Method of Accounting in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Equity Method of Accounting: frequently asked questions

Is goodwill on an associate shown separately?

No. Under the equity method, goodwill is part of the carrying amount of the investment. It is not amortised or tested separately. The whole carrying amount is tested for impairment under Ind AS 36 when indicators exist.

How are dividends from an associate treated?

They reduce the carrying amount of the investment. They are not recognised as income in profit or loss under the equity method.

What if the associate uses different accounting policies?

You adjust the associate's financial statements to your policies for like transactions and events in similar circumstances before applying the equity method.

What if the reporting dates are different?

The associate normally prepares statements as of your reporting date. If that is impracticable, a different date can be used if the gap is at most three months, with adjustments for significant events in between.