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

Zenith Ltd holds an investment in Orbit Ltd, an associate. Zenith bought the shares for ₹40,00,000 and its share of Orbit's net assets changed after acquisition. Under the equity method in Ind AS 28, the carrying amount in Zenith's consolidated financial statements is initially recognised at cost and then adjusted for:

Under the equity method the investment starts at cost and is adjusted for the post-acquisition change in the investor's share of the investee's net assets. Market price movements or dividends alone do not drive the carrying amount, so the first option is correct.

  1. AThe post-acquisition change in Zenith's share of Orbit's net assetsCorrect
  2. BThe change in the market price of Orbit's shares on the stock exchange
  3. COnly the dividends received from Orbit since acquisition
  4. DThe change in the face value of Orbit's shares

Explanation

Ind AS 28 describes the equity method as initial recognition at cost, adjusted for the post-acquisition change in the investor's share of the investee's net assets. Market price changes are not used. Dividends are only one component, as they reduce the carrying amount, but the adjustment is not limited to them.

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