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

On 1 April 2024, Meru Ltd bought 30% of the equity shares of Nila Ltd for ₹90 lakh. On that date Nila Ltd's net worth (share capital plus reserves) was ₹250 lakh. For the year ended 31 March 2025, Nila Ltd reported a profit after tax of ₹40 lakh and paid no dividend. What is the carrying amount of the investment in Nila Ltd in Meru Ltd's consolidated balance sheet at 31 March 2025?

The carrying amount is ₹102 lakh. Under the equity method, the cost of ₹90 lakh is increased by Meru Ltd's 30% share of Nila Ltd's post-acquisition profit of ₹40 lakh, which is ₹12 lakh. Goodwill is already part of the cost and is not added again.

  1. A₹102 lakhCorrect
  2. B₹90 lakh
  3. C₹114 lakh
  4. D₹12 lakh

Explanation

Share of profit = 30% x 40 = ₹12 lakh. Carrying amount = cost 90 + 12 = ₹102 lakh. Goodwill/capital reserve of 90 - 75 = ₹15 lakh is included in the carrying amount, not separately added. ₹90 lakh ignores the share of profit; ₹114 lakh wrongly adds the ₹15 lakh goodwill again.

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