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

Nandini Ltd, with subsidiaries, holds 30% of Orion Ltd, an associate. During 2025-26, Nandini Ltd sold goods costing ₹6 lakh to Orion Ltd for ₹8 lakh. At the year end, Orion Ltd still held all of these goods. Nandini Ltd's consolidated statements use the equity method for Orion Ltd. How much unrealised profit is eliminated under AS 23?

The amount eliminated is ₹0.6 lakh. The unrealised profit on the closing stock held by the associate is ₹2 lakh, and AS 23 requires elimination only to the extent of the investor's 30% interest, which gives ₹0.6 lakh.

  1. A₹2.0 lakh
  2. B₹0.6 lakhCorrect
  3. C₹1.4 lakh
  4. DNil, since sales to associates are not eliminated

Explanation

Total profit on the transaction = ₹8 lakh − ₹6 lakh = ₹2 lakh. Under AS 23, unrealised profits on transactions with an associate are eliminated to the extent of the investor's interest in the associate, which is 30% × ₹2 lakh = ₹0.6 lakh. Eliminating the full ₹2 lakh would apply only under a different treatment, and ₹1.4 lakh is the remaining 70% share.

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