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

Sundaram Ltd holds 30% of the equity shares of Kaveri Ltd and has significant influence over it. Sundaram also prepares consolidated financial statements because it has a subsidiary. How should Sundaram account for its investment in Kaveri Ltd in the consolidated financial statements under AS 23?

Sundaram should use the equity method. AS 23 requires investments in associates to be carried in consolidated financial statements under the equity method, starting at cost and adjusted for the investor's share of post-acquisition profits or losses. The cost method belongs to separate statements.

  1. ABy the equity methodCorrect
  2. BBy the cost method at the original purchase price
  3. CBy proportionate line-by-line consolidation
  4. DBy fair value through profit and loss

Explanation

AS 23 requires an investment in an associate to be accounted for in consolidated financial statements using the equity method, unless an exception applies. The cost method is used in the investor's separate financial statements, and proportionate consolidation applies to joint ventures under AS 27, not associates.

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