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CA Final · Financial Reporting · Ind AS 28 Investments in Associates and Joint Ventures

Chenab Ltd has an associate, Ravi Ltd, carried at Rs 20,00,000 under the equity method. Ravi incurs a loss in which Chenab's share is Rs 25,00,000. Chenab has no obligations or payments on behalf of Ravi and has no other long-term interests in it. What is the correct treatment under Ind AS 28?

Chenab reduces the investment to nil by recognising Rs 20,00,000 of loss and stops recognising the further Rs 5,00,000, since it has no obligations to Ravi. It resumes recognising profit only after its share of profits equals the unrecognised losses.

  1. AReduce the investment to nil and stop recognising further losses, with the unrecognised Rs 5,00,000 tracked for later profitsCorrect
  2. BRecognise the full Rs 25,00,000 and show the investment as a negative Rs 5,00,000 liability
  3. CRecognise Rs 20,00,000 and carry the remaining Rs 5,00,000 as a deferred asset
  4. DSwitch the investment to cost and recognise the loss only on disposal

Explanation

Under the equity method, the investor discontinues recognising its share of further losses once the share of losses equals or exceeds its interest, absent obligations. The investment is reduced to nil and the excess Rs 5,00,000 is not recognised. Option B is wrong because a liability arises only if there are obligations or payments made on the investee's behalf.

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