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

Gamma Ltd holds 40% of Delta Ltd, an associate, bought for ₹50 lakh. During the year Delta earns profit of ₹30 lakh and declares a dividend of ₹10 lakh in total. Under the equity method, what is the carrying amount of the investment in Gamma's consolidated balance sheet at year end (ignore other adjustments)?

The carrying amount is ₹58 lakh. Cost of ₹50 lakh is increased by the 40% share of profit, ₹12 lakh, and reduced by the 40% share of dividend, ₹4 lakh, because the dividend lowers the investee's net assets under the equity method.

  1. A₹58 lakhCorrect
  2. B₹62 lakh
  3. C₹54 lakh
  4. D₹66 lakh

Explanation

Share of profit is 40% × 30 = ₹12 lakh. Dividend received of 40% × 10 = ₹4 lakh reduces the investment as it is a distribution of net assets. Carrying amount = 50 + 12 − 4 = ₹58 lakh. ₹62 lakh wrongly ignores the dividend.

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