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

On 1 April 2025, Rudra Industries Ltd bought 30% of the equity shares of Sagar Chemicals Ltd for ₹90 lakh. On that date the equity share capital and reserves of Sagar Chemicals totalled ₹250 lakh. For the year ended 31 March 2026, Sagar Chemicals earned a profit after tax of ₹40 lakh and paid dividends of ₹10 lakh. Using the equity method under AS 23, what is the carrying amount of the investment in the consolidated balance sheet of Rudra Industries on 31 March 2026?

The carrying amount is ₹99 lakh. Under the equity method, cost of ₹90 lakh is increased by the investor's 30% share of profit, ₹12 lakh, and decreased by its 30% share of dividend, ₹3 lakh, because the dividend is a distribution of post-acquisition profits already recognised.

  1. A₹99 lakhCorrect
  2. B₹102 lakh
  3. C₹105 lakh
  4. D₹90 lakh

Explanation

The carrying amount starts at cost of ₹90 lakh. The investor's share of profit is 30% × 40 = ₹12 lakh, which is added. Dividend received is 30% × 10 = ₹3 lakh, which is a distribution and reduces the carrying amount. So 90 + 12 − 3 = ₹99 lakh. Not deducting the dividend gives ₹102 lakh, which is wrong.

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