Skip to content

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

On 1 April 2025, Arjun Ltd acquired 30% of the equity shares of Bhaskar Ltd for ₹90 lakh. On that date, Bhaskar Ltd's share capital was ₹200 lakh and its reserves were ₹60 lakh. For the year ended 31 March 2026, Bhaskar Ltd reported a profit after tax of ₹50 lakh and paid no dividend. What is the carrying amount of the investment in Bhaskar Ltd in Arjun Ltd's consolidated balance sheet at 31 March 2026?

The carrying amount is ₹105 lakh. Under the equity method the investment starts at cost of ₹90 lakh and is increased by the investor's 30% share of the associate's post-acquisition profit of ₹50 lakh, which is ₹15 lakh. Pre-acquisition reserves are not added.

  1. A₹90 lakh
  2. B₹105 lakhCorrect
  3. C₹78 lakh
  4. D₹120 lakh

Explanation

Carrying amount under the equity method equals cost plus share of post-acquisition profit. Share of profit = 30% × ₹50 lakh = ₹15 lakh. Carrying amount = ₹90 lakh + ₹15 lakh = ₹105 lakh. Adding share of pre-acquisition reserves (30% × ₹60 lakh = ₹18 lakh) would wrongly give ₹123 lakh, and ₹90 lakh ignores the profit share.

Did you get it right without looking?

One question tells you little. A timed set on AS 23 Accounting for Investments in Associates in Consolidated Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise AS 23 Accounting for Investments in Associates in Consolidated Financial StatementsFree diagnostic mock

More AS 23 Accounting for Investments in Associates in Consolidated Financial Statements questions