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

Himalaya Ltd acquired 40% of Yamuna Ltd on 1 April 2025 for ₹8,00,000, and the carrying amount at that date is the cost. For the year ended 31 March 2026, Yamuna Ltd reported a profit after tax of ₹6,00,000 and declared and paid a dividend of ₹2,00,000 during the year, all after the acquisition. No preference shares exist. What is the carrying amount of the investment in Himalaya Ltd's consolidated balance sheet at 31 March 2026?

The carrying amount is ₹9,60,000. Start with cost of ₹8,00,000, add the 40% share of profit of ₹2,40,000, and deduct the 40% share of dividend of ₹80,000, since dividend received reduces the investment's carrying amount under the equity method.

  1. A₹9,60,000Correct
  2. B₹10,40,000
  3. C₹8,80,000
  4. D₹9,20,000

Explanation

Share of profit = 40% × 6,00,000 = ₹2,40,000. Dividend received = 40% × 2,00,000 = ₹80,000, which reduces the carrying amount. Carrying amount = 8,00,000 + 2,40,000 − 80,000 = ₹9,60,000. Adding the dividend instead gives ₹10,40,000, which is wrong because dividend is a return of the investment, not additional profit.

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