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CA Final · Financial Reporting · Ind AS 28 Investments in Associates and Joint Ventures

Narmada Ltd bought 40% of Tapi Ltd, an associate, for Rs 50,00,000 when Tapi's identifiable net assets had a fair value of Rs 1,00,00,000. In the year, Tapi earned profit of Rs 20,00,000 and paid dividends of Rs 5,00,000. Ignoring other adjustments, what is the carrying amount of the investment in Narmada's consolidated balance sheet at year end?

The carrying amount is Rs 56,00,000. Start with cost of Rs 50,00,000, add the 40% share of profit of Rs 8,00,000, and deduct the dividend share of Rs 2,00,000, because dividends reduce the carrying amount under the equity method rather than being income.

  1. ARs 56,00,000Correct
  2. BRs 58,00,000
  3. CRs 60,00,000
  4. DRs 53,00,000

Explanation

Cost is 50,00,000 (includes goodwill of 10,00,000, since 40% x 1,00,00,000 = 40,00,000). Add share of profit 40% x 20,00,000 = 8,00,000, giving 58,00,000. Deduct dividend received 40% x 5,00,000 = 2,00,000, giving 56,00,000. Option B forgets to deduct dividends.

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