Skip to content

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

Bharat Ltd acquired 25% of Ganga Ltd, an associate, for Rs 400 lakh. During the year Ganga earned profit of Rs 160 lakh and paid total dividends of Rs 40 lakh. Bharat also sold goods costing Rs 600 lakh to Ganga for Rs 800 lakh, and Ganga still holds 50% of these goods at year end. Under the equity method, what is the carrying amount of the investment at year end?

The carrying amount is Rs 405 lakh: cost of Rs 400 lakh plus Rs 40 lakh share of profit, less Rs 10 lakh share of dividend, less Rs 25 lakh being Bharat's 25% share of the Rs 100 lakh unrealised profit on goods still held by the associate.

  1. ARs 405 lakhCorrect
  2. BRs 430 lakh
  3. CRs 330 lakh
  4. DRs 415 lakh

Explanation

Share of profit = 25% x 160 = 40. Share of dividend = 25% x 40 = 10. Unrealised profit on the downstream sale = (800 - 600) x 50% = 100, and only the investor's 25% share, i.e. 25, is eliminated. Carrying amount = 400 + 40 - 10 - 25 = Rs 405 lakh. Rs 330 lakh eliminates the whole 100.

Did you get it right without looking?

One question tells you little. A timed set on Consolidated Financial Statements and Separate Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise Consolidated Financial Statements and Separate Financial StatementsFree diagnostic mock

More Consolidated Financial Statements and Separate Financial Statements questions