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

Vishwa Motors Ltd holds 25% in Ananta Components Ltd, an associate. The carrying amount of this investment on 1 April 2025 was ₹200 lakh. During 2025-26, Vishwa Motors sold goods costing ₹80 lakh to Ananta for ₹100 lakh. On 31 March 2026, goods bought for ₹40 lakh out of this purchase were still in Ananta's closing stock. Ananta reported a profit of ₹60 lakh and paid dividends of ₹20 lakh for the year. Under AS 23, what is the carrying amount of the investment on 31 March 2026?

The carrying amount is ₹208 lakh. Start with ₹200 lakh, add the 25% share of profit of ₹15 lakh, deduct the 25% share of dividend of ₹5 lakh, and deduct ₹2 lakh, which is the investor's 25% share of the ₹8 lakh unrealised profit in the associate's closing stock.

  1. A₹208 lakhCorrect
  2. B₹210 lakh
  3. C₹202 lakh
  4. D₹213 lakh

Explanation

Share of profit is 25% × 60 = ₹15 lakh. Dividend share is 25% × 20 = ₹5 lakh. The profit margin on the sale is 20/100 = 20%, so the unrealised profit in closing stock is 40 × 20% = ₹8 lakh. The investor's share is 25% × 8 = ₹2 lakh, and AS 23 eliminates only that share. So 200 + 15 − 5 − 2 = ₹208 lakh. Eliminating the full ₹8 lakh gives ₹202 lakh, which is wrong.

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