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

Esha Ltd holds 30% of Fiza Ltd, an associate, accounted by the equity method. During 2025-26 Esha Ltd sold goods costing ₹6,00,000 to Fiza Ltd for ₹8,00,000. Fiza Ltd had sold none of these goods by 31 March 2026. Fiza Ltd's profit for the year is ₹5,00,000. The investment's carrying amount at the start of the year, after adjustments to that date, is ₹10,00,000, with no dividends. Under AS 23, what is the carrying amount of the investment at 31 March 2026 in the consolidated balance sheet?

The carrying amount is ₹10,90,000. Esha Ltd adds its 30% share of Fiza's profit, ₹1,50,000, and eliminates its 30% share of the unrealised profit on unsold goods, ₹60,000, to the extent of its interest in the associate, giving ₹10,00,000 + ₹1,50,000 − ₹60,000.

  1. A₹11,50,000
  2. B₹10,90,000Correct
  3. C₹10,90,000 less nothing as the stock sold downstream is ignored, giving ₹11,50,000
  4. D₹10,60,000

Explanation

Unrealised profit = ₹8,00,000 − ₹6,00,000 = ₹2,00,000. Investor's share = 30% × ₹2,00,000 = ₹60,000, eliminated. Share of associate profit = 30% × ₹5,00,000 = ₹1,50,000. Carrying amount = ₹10,00,000 + ₹1,50,000 − ₹60,000 = ₹10,90,000. ₹11,50,000 ignores the unrealised profit elimination.

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