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

Lotus Ltd holds 40% of Mohan Ltd, an associate. Lotus Ltd's cost of the investment was Rs 8,00,000. At 31 March 2026 the carrying amount under the equity method before considering losses was Rs 3,00,000 after Lotus's share of losses to date. In the current year, Mohan reported a further loss of Rs 10,00,000. Lotus has no obligation to fund Mohan's losses. What share of loss will Lotus recognise in the current year in its consolidated statement of profit and loss?

Lotus recognises Rs 3,00,000. Its 40% share of the loss is Rs 4,00,000, but under AS 23 the investor stops recognising losses once the investment is reduced to zero, absent an obligation to fund. Only the carrying amount of Rs 3,00,000 is written off.

  1. ARs 3,00,000Correct
  2. BRs 4,00,000
  3. CRs 1,00,000
  4. DNil

Explanation

Share of loss = 40% x 10,00,000 = 4,00,000. But the carrying amount is only 3,00,000, and AS 23 requires recognition of losses only until the investment is reduced to zero when there is no obligation. So Rs 3,00,000 is recognised and the unrecognised Rs 1,00,000 is not booked, though it is disclosed. Rs 4,00,000 would take the investment below zero.

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