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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 has board representation but no control. Meera prepares consolidated financial statements because it has a subsidiary. Which statement correctly describes how Kaveri Dyes is accounted for in Meera's consolidated financial statements under AS 23?

Kaveri Dyes is accounted for using the equity method, because a 30% holding with board representation indicates significant influence, making it an associate. AS 23 requires the equity method in consolidated statements. Proportionate consolidation is for jointly controlled entities, and full consolidation is for subsidiaries.

  1. AEquity method, as Kaveri Dyes is an associateCorrect
  2. BCost method, as no control exists
  3. CProportionate consolidation, line by line at 30%
  4. DFull line-by-line consolidation with minority interest

Explanation

Holding 20% or more of voting power gives a presumption of significant influence, and here it is supported by board representation. Kaveri Dyes is therefore an associate and AS 23 requires the equity method in consolidated statements. Proportionate consolidation applies to joint ventures under AS 27, not associates.

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