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

Nirmal Ltd holds 25% of Pooja Ltd, an associate. During 2025-26 Pooja paid a dividend of Rs 4,00,000 out of its profits, and reported a profit after tax of Rs 12,00,000. The investment's carrying amount in Nirmal's consolidated statements was Rs 20,00,000 at the start of the year. What is the closing carrying amount, assuming no other adjustments?

The closing carrying amount is Rs 22,00,000. Under the equity method the investment rises by Nirmal's 25% share of profit, Rs 3,00,000, and falls by its share of the dividend received, Rs 1,00,000, because the dividend is a return of the investment, not income.

  1. ARs 22,00,000Correct
  2. BRs 23,00,000
  3. CRs 20,00,000
  4. DRs 24,00,000

Explanation

Share of profit = 25% x 12,00,000 = Rs 3,00,000. Share of dividend received = 25% x 4,00,000 = Rs 1,00,000, which reduces the carrying amount under the equity method. Closing = 20,00,000 + 3,00,000 - 1,00,000 = Rs 22,00,000. Rs 23,00,000 ignores the dividend deduction.

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