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

On 1 April 2025, Kaveri Ltd. bought 30% of the equity of Narmada Ltd. for ₹60 lakh, which includes goodwill. During 2025-26 Narmada Ltd. earned a post-acquisition profit of ₹50 lakh and declared a dividend of ₹20 lakh. Narmada Ltd. is an associate, and Kaveri Ltd. has no other transactions with it. Under the equity method in consolidated financial statements, what is the carrying amount of the investment at 31 March 2026?

The carrying amount is ₹69 lakh. Under the equity method, the cost of ₹60 lakh is increased by the 30% share of profit, ₹15 lakh, and reduced by the 30% share of dividend, ₹6 lakh. Ignoring the dividend would wrongly give ₹75 lakh.

  1. A₹54 lakh
  2. B₹69 lakhCorrect
  3. C₹75 lakh
  4. D₹81 lakh

Explanation

Carrying amount = cost 60 + share of profit (30% of 50 = 15) − share of dividend (30% of 20 = 6) = ₹69 lakh. Dividends received reduce the carrying amount because they distribute profit already recognised. Adding the profit share only gives ₹75 lakh, which ignores the dividend.

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