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

Bharat Textiles Ltd holds 18% of the voting power in Kaveri Dyes Ltd directly. Its wholly owned subsidiary, Bharat Exports Ltd, holds another 4% of the voting power in Kaveri Dyes Ltd. Nothing else indicates the extent of influence. The investment is not held exclusively for disposal in the near future. How should Kaveri Dyes Ltd be viewed for the consolidated financial statements of Bharat Textiles?

Kaveri Dyes Ltd is presumed to be an associate. AS 23 counts voting power held directly and indirectly through subsidiaries, so 18% plus 4% gives 22%, which is above the 20% threshold. The presumption of significant influence applies unless the contrary is clearly demonstrated, and 22% does not make it a subsidiary.

  1. AIt is presumed to be an associate, because 22% of the voting power is held directly and through the subsidiaryCorrect
  2. BIt is not an associate, because the direct holding is below 20%
  3. CIt is an associate only if Bharat Textiles has the right to appoint a director
  4. DIt is a subsidiary, because the combined holding exceeds the direct holding

Explanation

AS 23 presumes significant influence when the investor holds, directly or indirectly through subsidiaries, 20% or more of the voting power. Here 18% + 4% = 22%, so the entity is presumed to be an associate unless it can be clearly demonstrated otherwise. Ignoring the subsidiary's 4% is the error in the second option. Subsidiary status needs control, not 22%.

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