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CA Final · Financial Reporting · Ind AS 28 Investments in Associates and Joint Ventures

On 1 April, Alpha Ltd acquires 30% of Beta Ltd, an associate, for ₹4,50,00,000. The fair value of Beta's identifiable assets and liabilities on that date is a net ₹16,00,00,000. For the year, Beta reports profit of ₹1,00,00,000 and pays no dividend. Under Ind AS 28 as notified in India, what is the carrying amount of the investment at year-end, and how is the excess of Alpha's share of net fair value over cost treated?

The carrying amount is ₹5,10,00,000 and the ₹30,00,000 excess goes to capital reserve. Share of net fair value is ₹4.80 crore against cost of ₹4.50 crore. Adding the 30% share of profit of ₹30 lakh gives ₹5.10 crore. Ind AS 28 routes the excess to capital reserve, unlike IAS 28.

  1. A₹5,10,00,000; the excess of ₹30,00,000 is transferred to capital reserveCorrect
  2. B₹5,10,00,000; the excess of ₹30,00,000 is recognised in profit or loss
  3. C₹4,80,00,000; the excess of ₹30,00,000 is transferred to capital reserve
  4. D₹5,40,00,000; the excess of ₹30,00,000 is transferred to capital reserve

Explanation

Share of net fair value is 30% × 16,00,00,000 = 4,80,00,000, and the excess over cost of 4,50,00,000 is 30,00,000. Ind AS 28 (para 32(b), modified from IAS 28) transfers this excess to capital reserve, not to profit or loss. The investment is therefore effectively 4,80,00,000 at acquisition. Adding the share of profit (30% × 1,00,00,000 = 30,00,000) gives 5,10,00,000. Recognising the excess in profit or loss is the IAS 28 treatment, which Ind AS does not follow.

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