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

Arjun Ltd acquired 25% of Bhima Ltd on 1 April 2025 at a cost of ₹6,00,000, which equalled its share of net assets. Bhima Ltd incurred a loss of ₹30,00,000 in 2025-26 and a profit of ₹8,00,000 in 2026-27. There are no other transactions and Arjun Ltd has no obligation to fund Bhima Ltd's losses. As per AS 23, what is the carrying amount of the investment in the consolidated balance sheet at 31 March 2027?

The carrying amount is ₹50,000. The 2025-26 share of loss of ₹7,50,000 reduces the investment to nil, leaving ₹1,50,000 unrecognised. The 2026-27 share of profit of ₹2,00,000 first absorbs that ₹1,50,000, so only ₹50,000 is recognised in the investment.

  1. A₹2,00,000Correct
  2. B₹Nil
  3. C₹6,00,000
  4. D₹(1,50,000)

Explanation

Share of 2025-26 loss = 25% × 30,00,000 = ₹7,50,000, which exceeds the carrying amount of ₹6,00,000. Loss recognition is limited to the investment, so the carrying amount becomes nil and ₹1,50,000 of loss is unrecognised. In 2026-27, share of profit = 25% × 8,00,000 = ₹2,00,000. Profit is recognised only after setting off the unrecognised losses of ₹1,50,000, so recognised profit is ₹50,000 and the carrying amount is ₹50,000. Hence the correct figure is ₹50,000, which is not among the intended options as listed; recomputing against the options, the key ₹2,00,000 is wrong.

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