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

Gopal Ltd accounts for its 40% investment in Hari Ltd, an associate, under the equity method. At the start of the year, the carrying amount of the equity investment was ₹10 crore. Gopal Ltd also holds a long-term loan of ₹4 crore to Hari Ltd, settlement of which is neither planned nor likely in the foreseeable future. This loan forms part of its net investment. Gopal Ltd has no legal or constructive obligation to fund Hari Ltd's losses. Gopal Ltd's share of Hari Ltd's loss for the year is ₹18 crore. What amount of share of loss is recognised in Gopal Ltd's profit or loss for the year?

Gopal Ltd recognises a loss of ₹14 crore. The loss first reduces the ₹10 crore equity investment to nil and then the ₹4 crore long-term interest in the net investment. The remaining ₹4 crore is not recognised because Gopal Ltd has no obligation to fund Hari Ltd's losses.

  1. A₹18 crore
  2. B₹14 croreCorrect
  3. C₹10 crore
  4. DNil

Explanation

Losses are first applied against the equity investment, reducing ₹10 crore to nil. Further losses are applied to other interests forming part of the net investment, here the ₹4 crore loan, reducing it to nil. The total recognised is 10 + 4 = ₹14 crore. The remaining ₹4 crore is not recognised, since there is no obligation to fund Hari Ltd. Recognising ₹10 crore ignores the long-term loan, and ₹18 crore ignores the cap.

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