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

Sagar Ltd bought 40% of Tanvi Ltd on 1 April 2025 for ₹1,20,00,000. Tanvi Ltd's profit after tax for 2025-26 was ₹50,00,000, and it declared and paid a dividend of ₹20,00,000 during the year. Sagar Ltd received its share of the dividend. What is the carrying amount of the investment in Tanvi Ltd in Sagar's consolidated balance sheet at 31 March 2026 under AS 23?

The carrying amount is ₹1,32,00,000. Under the equity method the cost of ₹1,20,00,000 is increased by the 40% share of profit, ₹20,00,000, and reduced by the dividend received, ₹8,00,000 (40% of ₹20,00,000). Dividends are a return of investment, not income, in consolidated statements.

  1. A₹1,32,00,000Correct
  2. B₹1,40,00,000
  3. C₹1,20,00,000
  4. D₹1,52,00,000

Explanation

Share of profit = 40% × 50,00,000 = ₹20,00,000. Dividend received = 40% × 20,00,000 = ₹8,00,000, which reduces the carrying amount under the equity method. Carrying amount = 1,20,00,000 + 20,00,000 − 8,00,000 = ₹1,32,00,000. Ignoring the dividend gives ₹1,40,00,000, which is wrong.

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