Skip to content

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

Gagan Ltd holds 35% of Hari Ltd, an associate accounted by the equity method. The carrying amount of the investment at 1 April 2025 is ₹3,00,000. Hari Ltd incurred a loss of ₹10,00,000 for 2025-26. Gagan Ltd has no obligation to fund Hari Ltd's losses and has given no guarantees. What should Gagan Ltd show as the carrying amount of the investment at 31 March 2026 in its consolidated financial statements?

The investment is shown at nil. Gagan's 35% share of the loss is ₹3,50,000, which exceeds the carrying amount of ₹3,00,000. Since it has no obligation to fund the associate, AS 23 requires it to stop recognising losses once the investment reaches zero.

  1. ANegative ₹50,000, shown as a liability
  2. B₹3,00,000 unchanged until Hari Ltd returns to profit
  3. CNil, with the excess loss of ₹50,000 not recognisedCorrect
  4. D₹3,00,000 reduced by ₹1,00,000 only

Explanation

Share of loss = 35% × ₹10,00,000 = ₹3,50,000, which exceeds the carrying amount of ₹3,00,000. Under AS 23, the investor discontinues recognising further losses once the investment is reduced to zero, as there is no obligation to fund. So the carrying amount is nil, and the excess ₹50,000 is not recognised (it is disclosed as unrecognised). Showing a negative balance would be wrong.

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