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

Gopal Ltd holds 35% in Hari Ltd, an associate, acquired at cost of Rs 15,00,000. At the beginning of the year the carrying amount under the equity method was Rs 18,00,000. During the year Hari Ltd reported a profit of Rs 8,00,000 and declared a dividend of Rs 5,00,000, of which Gopal Ltd received its share. What is the closing carrying amount of the investment in the consolidated financial statements?

The closing carrying amount is Rs 19,05,000. Opening Rs 18,00,000 is increased by the 35% share of profit, Rs 2,80,000, and reduced by the dividend received, Rs 1,75,000, because dividends distribute profits already recognised and so reduce the carrying amount under the equity method.

  1. ARs 19,05,000Correct
  2. BRs 20,80,000
  3. CRs 18,00,000
  4. DRs 21,05,000

Explanation

Share of profit = 35% x 8,00,000 = 2,80,000. Dividend received = 35% x 5,00,000 = 1,75,000, which reduces the carrying amount under the equity method. Closing = 18,00,000 + 2,80,000 - 1,75,000 = 19,05,000. Option 20,80,000 ignores the dividend and 21,05,000 adds it instead.

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