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

Ganga Ltd holds 30% of Indus Ltd, an associate, acquired at cost. During 2025-26, Ganga Ltd sold goods costing ₹4,00,000 to Indus Ltd for ₹5,00,000, and Indus Ltd still holds all of them at year end. Which statement correctly describes the treatment in Ganga Ltd's consolidated financial statements under AS 23?

Unrealised profit of ₹30,000 is eliminated. The profit on goods still held by the associate is ₹1,00,000, and AS 23 requires elimination only to the extent of the investor's 30% interest, so the investment and group profit are reduced by ₹30,000.

  1. AUnrealised profit of ₹30,000 (30% of ₹1,00,000) is eliminated from the investment and the group's profitCorrect
  2. BUnrealised profit of ₹1,00,000 is fully eliminated from the investment
  3. CNo elimination is needed because Indus Ltd is not a subsidiary
  4. DUnrealised profit is eliminated only when goods are sold at a loss

Explanation

AS 23 requires unrealised profits or losses on transactions with an associate to be eliminated to the extent of the investor's interest in the associate. Profit on the sale = 5,00,000 − 4,00,000 = ₹1,00,000, and the investor's share is 30% × 1,00,000 = ₹30,000. Full elimination applies to subsidiaries, not associates.

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