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

Meera Textiles Ltd holds 30% of the equity shares of Kaveri Dyes Ltd and prepares consolidated financial statements. It has significant influence over Kaveri Dyes but no subsidiaries of its own other than one it consolidates. Which method does AS 23 require Meera Textiles to use for its investment in Kaveri Dyes in the consolidated financial statements?

The equity method is required. AS 23 mandates that investments in associates be carried in consolidated financial statements under the equity method, since the investor has significant influence. Proportionate consolidation applies to jointly controlled entities under AS 27, and the cost method applies only in limited exceptions.

  1. ACost method
  2. BEquity methodCorrect
  3. CProportionate consolidation method
  4. DFair value method

Explanation

AS 23 requires an investment in an associate to be accounted for in consolidated financial statements using the equity method, except where the investment is acquired and held exclusively for disposal in the near future or the associate operates under severe long-term restrictions. Neither exception applies here. Proportionate consolidation is used for joint ventures under AS 27, not for associates.

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