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

Sagar Ltd acquired 40% of Tilak Ltd on 1 April 2025 for ₹150 lakh. At that date, the net assets of Tilak Ltd (book value equal to fair value) were ₹300 lakh. For 2025-26, Tilak Ltd earned a profit of ₹40 lakh and declared and paid a dividend of ₹10 lakh during the year. Under AS 23, what is the carrying amount of the investment in the consolidated balance sheet of Sagar Ltd at 31 March 2026, and what is the goodwill/capital reserve embedded in the cost?

The carrying amount is ₹162 lakh, with goodwill of ₹30 lakh included in it. Goodwill is cost of ₹150 lakh less 40% of net assets of ₹300 lakh. The investment rises by the 40% profit share of ₹16 lakh and falls by the ₹4 lakh dividend received.

  1. A₹162 lakh; goodwill ₹30 lakhCorrect
  2. B₹162 lakh; capital reserve ₹30 lakh
  3. C₹166 lakh; goodwill ₹30 lakh
  4. D₹150 lakh; goodwill ₹30 lakh

Explanation

Share of net assets at acquisition = 40% × ₹300 lakh = ₹120 lakh, so goodwill = ₹150 − ₹120 = ₹30 lakh. Share of profit = 40% × ₹40 lakh = ₹16 lakh. Dividend received = 40% × ₹10 lakh = ₹4 lakh, which reduces the carrying amount. Carrying amount = 150 + 16 − 4 = ₹162 lakh. Ignoring the dividend gives ₹166 lakh.

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