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

On 1 April 2024, Veda Ltd acquired 40% of the equity shares of Neel Ltd for Rs 5,00,000. On that date, Neel Ltd's share capital was Rs 8,00,000 and its reserves were Rs 4,00,000. For the year ended 31 March 2025, Neel Ltd reported a profit of Rs 3,00,000 and paid no dividend. What is the carrying amount of the investment in Neel Ltd in Veda Ltd's consolidated balance sheet on 31 March 2025?

The carrying amount is Rs 6,20,000. Under the equity method the investment starts at cost of Rs 5,00,000, which includes goodwill of Rs 20,000, and is increased by Veda's 40% share of Neel's post-acquisition profit of Rs 3,00,000, being Rs 1,20,000. No dividend reduces it.

  1. ARs 6,20,000Correct
  2. BRs 5,00,000
  3. CRs 6,80,000
  4. DRs 5,80,000

Explanation

Share of net assets at acquisition is 40% x 12,00,000 = Rs 4,80,000, so goodwill is Rs 20,000 (5,00,000 - 4,80,000), which is included in the carrying amount. Share of post-acquisition profit is 40% x 3,00,000 = Rs 1,20,000. Carrying amount = 5,00,000 + 1,20,000 = Rs 6,20,000. Rs 5,80,000 wrongly deducts goodwill, which is not separately removed from the carrying amount.

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