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

Sagar Ltd acquired 30% of Tara Ltd on 1 April 2025 for Rs 5,00,000, when Tara's net worth was Rs 14,00,000. For the year ended 31 March 2026, Tara reported a profit after tax of Rs 4,00,000 and paid a dividend of Rs 1,00,000 during the year. Under the equity method, what is the carrying amount of the investment in Sagar's consolidated balance sheet at 31 March 2026?

The carrying amount is Rs 5,90,000. Under the equity method, cost of Rs 5,00,000 is increased by the 30% share of profit, Rs 1,20,000, and reduced by the 30% share of dividend, Rs 30,000, because dividend is a return of the investment rather than income.

  1. ARs 5,90,000Correct
  2. BRs 5,30,000
  3. CRs 6,20,000
  4. DRs 6,50,000

Explanation

Share of profit = 30% x 4,00,000 = 1,20,000, which increases the carrying amount. Dividend received = 30% x 1,00,000 = 30,000, which reduces it. Carrying amount = 5,00,000 + 1,20,000 - 30,000 = 5,90,000. Option Rs 6,20,000 forgets to deduct the dividend.

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