Skip to content

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

Asha Ltd holds 15% of the voting power in Veda Ltd directly. Asha's wholly-owned subsidiary holds a further 8% of the voting power in Veda Ltd. Asha has no other rights in Veda and there is no evidence of lack of significant influence. How should Veda Ltd be treated in Asha's consolidated financial statements under AS 23?

Veda Ltd is an associate. AS 23 presumes significant influence when the investor holds 20% or more of voting power directly or indirectly through subsidiaries. Asha's 15% direct holding plus its subsidiary's 8% gives 23%, so the equity method applies. It is not a subsidiary because control would need more than 50%.

  1. ANot an associate, because Asha's direct holding is below 20%
  2. BAn associate, because voting power held directly and through the subsidiary totals 23%Correct
  3. CAn associate only if Asha has a representative on Veda's board
  4. DA subsidiary, because the combined holding exceeds 20%

Explanation

Under AS 23, holding 20% or more of voting power, directly or indirectly through subsidiaries, is presumed to give significant influence. Here 15% + 8% = 23%, so Veda is an associate and the equity method applies. Control (more than 50% of voting power) is absent, so it is not a subsidiary. Looking only at the direct 15% ignores the indirect holding the standard counts.

Did you get it right without looking?

One question tells you little. A timed set on AS 23 Accounting for Investments in Associates in Consolidated Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise AS 23 Accounting for Investments in Associates in Consolidated Financial StatementsFree diagnostic mock

More AS 23 Accounting for Investments in Associates in Consolidated Financial Statements questions