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Quick Reference on Accounting Standard (AS) 23

Download Quick Reference on Accounting Standard (AS) 23 Accounting for Investments in Associates in Consolidated Financial Statements

This Standard should be applied in accounting for investments in associates in the preparation and presentation of consolidated Financial Statements (CFS) by an investor.

Associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture of the investor.

If an investor holds, directly or indirectly, through subsidiaries, 20% or more of the voting power of the investee, it is presumed that the investor has significant influence unless it can be clearly demonstrated that this is not the case.

Accounting for Investments – Equity Method

  • An investment in an associate should be accounted for in CFS under the equity method except when:
    • the investment is acquired and held exclusively with a view to its subsequent disposal in the near future; or
    • the associate operates under severe long-term restrictions that significantly impair its ability to transfer funds to the investor.

Investments in such associates should be accounted for in accordance with AS 13. The reasons for not applying the equity method in accounting for investments in an associate should be disclosed in the CFS.

  • Investment is initially recorded at cost, identifying any goodwill/capital reserve arising at the time of acquisition.
  • Carrying amount of the investment is adjusted thereafter for the post acquisition change in the investor’s share of net assets of the investee.
  • Consolidated Statement of Profit and Loss reflects the investor’s share of the results of operations of the investee.
  • Goodwill/capital reserve arising on the acquisition of an associate by an investor should be included in the carrying amount of investment in the associate but should be disclosed separately.
  • Unrealised profits and losses resulting from transactions between the investor (or its consolidated subsidiaries) and the associate should be eliminated to the extent of the investor’s interest in the associate.
  • Unrealised losses should not be eliminated if and to the extent the cost of the transferred asset cannot be recovered.
  • Carrying amount of investment in an associate should be reduced to recognise a decline, other than temporary, in the value of the investment, such reduction being determined and made for each investment individually.
  • Where an associate presents CFS, the results and net assets to be taken into account are those reported in that associate’s CFS.

Different Reporting Dates

When reporting dates of the investor and the associate are different, the associate often prepares, for the use of the investor, statements as at the same date as the financial statements of the investor. When impracticable, financial statements drawn up to a different reporting date may be used and adjusted for the effects of any significant events or transactions between the investor (or its consolidated subsidiaries) and the associate that occur between the date of the associate’s financial statements and the date of the investor’s CFS.

Uniform Accounting Policies

The investor usually prepares CFS using uniform accounting policies for the like transactions and events in similar circumstances. In case an associate uses different accounting policies other than those adopted for the CFS for like transactions and events in similar circumstances, appropriate adjustments are made to the associate’s financial statements when they are used by the investor in applying the equity method. If not practicable, that fact is disclosed along with a brief description of the differences between the accounting policies.

Cessation of Equity Method

An investor should discontinue the use of the equity method from the date that:

  • it ceases to have significant influence in an associate but retains, either in whole or in part, its investment; or
  • the use of the equity method is no longer appropriate because the associate operates under severe long-term restrictions that significantly impair its ability to transfer funds to the investor.

From such date, investments in such associates are accounted for as per AS 13.

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