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

Ishaan Ltd owns 30% of Jiya Ltd, an associate, and prepares consolidated statements. During the year Ishaan Ltd sold goods costing Rs 6,00,000 to Jiya Ltd for Rs 8,00,000. At year end, Jiya Ltd still held half of these goods in stock. Jiya Ltd's reported profit after tax was Rs 20,00,000, and no other adjustments are needed. What is Ishaan Ltd's share of the associate's profit to be included in the consolidated statement of profit and loss?

The share included is Rs 5,70,000. Unrealised profit on goods remaining with the associate is Rs 1,00,000, and only the investor's 30% share, Rs 30,000, is eliminated from its 30% share of profit of Rs 6,00,000, leaving Rs 5,70,000.

  1. ARs 5,70,000Correct
  2. BRs 6,00,000
  3. CRs 5,40,000
  4. DRs 5,00,000

Explanation

Unrealised profit = (8,00,000 - 6,00,000) x 1/2 = 1,00,000 on goods still in stock. Investor's share = 30% x 1,00,000 = 30,000, to be eliminated. Share of profit = 30% x 20,00,000 = 6,00,000 less 30,000 = 5,70,000. Eliminating the entire 1,00,000 would give 5,00,000, which is wrong because only the investor's share is eliminated under AS 23.

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