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

On 1 April 2025, Narmada Ltd acquired 25% of the equity shares of Tapti Ltd for Rs 40,00,000 and gets significant influence. On that date, Tapti's equity share capital was Rs 80,00,000 and its reserves were Rs 60,00,000, with no revaluation differences. For the year ended 31 March 2026, Tapti reported a profit of Rs 20,00,000 and paid no dividend. What is the carrying amount of the investment in the consolidated balance sheet of Narmada at 31 March 2026?

The carrying amount is Rs 45,00,000. Under the equity method the investment starts at cost of Rs 40,00,000, which includes goodwill, and is increased by the investor's 25% share of the post-acquisition profit of Rs 20,00,000, which is Rs 5,00,000. Goodwill is not separately deducted.

  1. ARs 40,00,000
  2. BRs 43,00,000
  3. CRs 45,00,000Correct
  4. DRs 48,00,000

Explanation

Share of net assets at acquisition = 25% x 1,40,00,000 = Rs 35,00,000, so goodwill included in cost is Rs 5,00,000. Share of post-acquisition profit = 25% x 20,00,000 = Rs 5,00,000. Carrying amount = 40,00,000 + 5,00,000 = Rs 45,00,000. Rs 43,00,000 wrongly reduces cost by goodwill nothing; Rs 40,00,000 ignores the profit share.

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