Skip to content

CMA Final · Corporate Financial Reporting · Consolidated Financial Statements and Separate Financial Statements

Sigma Ltd holds 30% of Tau Ltd, an associate, bought at a cost of ₹30,00,000. In the year Tau earned profit of ₹20,00,000 and declared a dividend of ₹8,00,000 in total. Under the equity method in Sigma's consolidated financial statements, what is the carrying amount of the investment at year end?

The carrying amount is ₹33,60,000. Under the equity method the investment starts at cost of ₹30,00,000, increases by the 30% share of profit of ₹6,00,000, and decreases by the dividend received of ₹2,40,000, because the dividend is a return of the investment.

  1. A₹33,60,000Correct
  2. B₹36,00,000
  3. C₹30,00,000
  4. D₹38,40,000

Explanation

Share of profit = 30% x 20,00,000 = 6,00,000. Dividend received = 30% x 8,00,000 = 2,40,000, which reduces the carrying amount. Carrying amount = 30,00,000 + 6,00,000 - 2,40,000 = ₹33,60,000. Adding only profit gives ₹36,00,000, which ignores the dividend.

Did you get it right without looking?

One question tells you little. A timed set on Consolidated Financial Statements and Separate Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise Consolidated Financial Statements and Separate Financial StatementsFree diagnostic mock

More Consolidated Financial Statements and Separate Financial Statements questions