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CMA Final · Corporate Financial Reporting · Consolidated Financial Statements and Separate Financial Statements

Alpha Ltd acquires 30% of Beta Ltd for ₹60 lakh at the start of the year and has significant influence but no control. Beta's net assets change during the year only through profit of ₹40 lakh, with no dividends. In Alpha's consolidated financial statements using the equity method, what is the carrying amount of the investment at year end (ignoring goodwill adjustments and impairment)?

The carrying amount is ₹72 lakh. Under the equity method the investment starts at cost of ₹60 lakh and is adjusted for the investor's 30% share of the investee's profit of ₹40 lakh, which is ₹12 lakh, with no dividends reducing it.

  1. A₹60 lakh
  2. B₹72 lakhCorrect
  3. C₹48 lakh
  4. D₹100 lakh

Explanation

Equity method: initial cost ₹60 lakh plus 30% of ₹40 lakh profit = ₹12 lakh, giving ₹72 lakh. Keeping ₹60 lakh ignores the post-acquisition change in net assets. ₹48 lakh wrongly subtracts the share.

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