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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 significant influence over it. Meera Textiles prepares consolidated financial statements because it also has subsidiaries. Kaveri Dyes is not acquired with an intention to dispose of it in the near future. Under AS 23, how should the investment in Kaveri Dyes be accounted for in the consolidated financial statements?

The investment should be accounted for by the equity method. AS 23 prescribes the equity method for associates in consolidated statements, except where the investment is held exclusively for near-term disposal. Line-by-line proportionate consolidation applies to joint ventures, not associates.

  1. ABy the equity methodCorrect
  2. BBy the cost method at original cost
  3. CBy proportionate consolidation of assets and liabilities line by line
  4. DBy fair value through profit and 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 for disposal in the near future. Proportionate consolidation is for joint ventures under AS 27, and the cost method is used only in separate financial statements or for the exceptions.

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