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CA Intermediate · Advanced Accounting · AS 23 Accounting for Investments in Associates in Consolidated Financial Statements

Anil Ltd holds 35% of Bhanu Ltd, an associate, with a carrying amount of Rs 3,00,000 at the start of the year. In the current year Bhanu Ltd incurred a loss of Rs 12,00,000. What amount of loss should Anil Ltd recognise in its consolidated statement of profit and loss for this associate, and what is the investment's carrying amount after recognition, assuming Anil Ltd has no other obligations to Bhanu Ltd?

Anil Ltd recognises a loss of Rs 3,00,000 and the carrying amount becomes nil. Its share of the loss is Rs 4,20,000, but AS 23 says recognition of losses stops when the investment is reduced to zero, so the unrecognised Rs 1,20,000 is not booked absent any obligation.

  1. ALoss Rs 3,00,000; carrying amount nilCorrect
  2. BLoss Rs 4,20,000; carrying amount negative Rs 1,20,000
  3. CLoss Rs 4,20,000; carrying amount nil
  4. DLoss Rs 12,00,000; carrying amount nil

Explanation

Share of loss is 35% x 12,00,000 = Rs 4,20,000. Under AS 23, the investor discontinues recognising its share of losses once the carrying amount is reduced to zero. So only Rs 3,00,000 is recognised and the carrying amount becomes nil. The excess Rs 1,20,000 is not recognised unless Anil Ltd has obligations to fund it.

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