- Investments in associates are initially recognized at cost and subsequently adjusted to recognize the investor's share of the associate's profit or loss and other comprehensive income. - The carrying amount is reduced by any dividends received from the associate. Gains or losses on revaluation of property, plant and equipment and foreign exchange differences are also passed through to other comprehensive income. - When an investor loses control of a subsidiary it reclassifies amounts in other comprehensive income to profit or loss or retained earnings on the same basis as if it directly disposed of the related assets or liabilities.

2. In the books of investor:
 Initial recognition : At cost
 Subsequent recognition :
◦ Increase / decrease carrying amount with profit /loss of the
associate
◦ Recognise profit / loss of subsidiary in P& L account of
investor
◦ Reduce the carrying amount with dividends received from
associates
 Adjust the carrying amount for the following:
◦ changes in the investee’s other comprehensive income due to :
 Changes arising from the revaluation of property, plant and
equipment
 foreign exchange translation differences.
 Adjust investor’s other comprehensive income:
◦ With the investor’s share of those changes arising from
revaluation , exchange difference etc.

3. Investment A/C
Details Amount in Rs.lakhs
Cost of investment 80
Share of post acquisition profit 25% 25
105
Less : dividends received after acquisition 15
90
Add : Share of revaluation surplus of PPE 25 % of Rs.40 lakhs 10
Carrying amount 100
P & L A/C
Share of post acquisition profit 25
Statement of Comprehensive income
Share of revaluation surplus 10

4.  In Parent company’s separate financial
statements, no need to follow equity
method. It is followed only in consolidated
statement
 Presently Fair Value is not considered
 In AS dividend treatment is not specifically
mentioned, though as per general
principles, the same is reduced from
investment value
 In IFRS , there is no concept of “Capital
reserve”. Instead, when Net asset received is
more than consideration paid, the excess is
credited to P & L and corresponding
increase in carrying amount.

5. Amount in Amount in Rs.
Description Rs. Lakhs Lakhs
Situation 1 Situation 2
Investment at cost 80 80
Share of Net asset at FV 75 85
Goodwill / (capital reserve) 5 -5
Carrying amount ( goddwill is
embeded) 80 85
In situation 2, Rs. 5 lakhs is credited
to P & L

6.  Interest in associate = carrying amount +
Other long term interest
 Losses in excess of carrying amount of
investment is recognised in “other interests”
 After “other interests” are also exhausted,
additional losses if any by way of amount
paid by a parent on behalf of associate, a
liability should be recognised.

7. On loss of control,
 Reclassify the amounts recognized in
“Other comprehensive income” on the same
basis as it would be done by the parent
when it disposes assets / liabilities directly.
For example :
◦ The Profit or loss on financial assets held for sale
recognized in “Other comprehensive income”
shall be reclassified to “P & L account”
◦ Revaluation surplus recognized in “Other
comprehensive income “ shall be reclassified to
“Retained earnings”.

8. Acquisition
Consolidation of JV accounts date Entity
Details Entity A Entity B Entity AB AB
Amount in rupees
Share capital 70000 50000 20000 20000
Reserves and surplus 120000 130000 10000 6000
Loan Funds 70000 50000 40000 30000
Total 260000 230000 70000 56000
Net fixed assets 180000 200000 50000 40000
Investment in JV 1000 15000
Net current assets 79000 15000 20000 16000
Total 260000 230000 70000 56000
financial statements after consolidation
Entity A Entity B
Share capital 70000 50000
Reserves and surplus 120000+2000 122000 130000+2000 132000
Capital reserve 12000
Loan Funds 70000+20000 90000 50000+20000 70000
Total 294000 252000
Net fixed assets 180000+25000 205000 200000+25000 225000
Goodwill 2000
Investment in JV
Net current assets 79000+10000 89000 15000+10000 25000
Total 294000 252000