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

Sunrise Ltd holds 22% of the equity voting power of Tara Ltd, acquired as a long-term investment, and has the right to appoint one of the seven directors. Sunrise Ltd prepares consolidated financial statements and has no other interest in Tara Ltd. How should the investment be treated in Sunrise Ltd's consolidated financial statements under AS 23?

The investment is an associate and is accounted for using the equity method in consolidated statements. AS 23 presumes significant influence where the investor holds 20% or more of voting power, and nothing here shows control or joint control, so line-by-line consolidation does not apply.

  1. AAs an associate, using the equity methodCorrect
  2. BAs a subsidiary, by line-by-line consolidation
  3. CAs an ordinary investment, at cost under AS 13
  4. DAs a joint venture, by proportionate consolidation

Explanation

Under AS 23, holding 20% or more of voting power is presumed to give significant influence, and the investee is not a subsidiary or a joint venture. Here 22% with board representation indicates an associate. The equity method must therefore be applied in the consolidated statements.

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