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

Meera Textiles Ltd acquires 30% of the equity shares of Kaveri Dyes Ltd on 1 April for Rs 12,00,000 and has no subsidiaries of its own other than as stated; it prepares consolidated financial statements. Meera Textiles has significant influence over Kaveri Dyes. Under AS 23, which method must be used for Kaveri Dyes in the consolidated financial statements (assuming the investment is not acquired exclusively for disposal in the near future)?

The equity method must be used. AS 23 requires investments in associates to be accounted for under the equity method in consolidated financial statements, unless held exclusively for near-term disposal or under severe long-term restrictions. Proportionate consolidation is for jointly controlled entities under AS 27.

  1. AEquity methodCorrect
  2. BCost method
  3. CProportionate consolidation
  4. DFair value through profit or loss

Explanation

AS 23 requires an investment in an associate to be accounted for in consolidated financial statements using the equity method, unless it is acquired and held exclusively with a view to disposal in the near future or operates under severe long-term restrictions. Proportionate consolidation applies to joint ventures under AS 27, not to associates.

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