As-23

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Querist : Anonymous

Querist : Anonymous (Querist)

11 April 2012 Grand Softex Ltd. acquired 30% of East softex eqity shares for Rs. 2,00,000 on 1-6-09. During the financial year 2008-2009 East earned Rs.80,000 and declared dividends of Rs.50,000 on 12-8-2009. East reported earning of Rs.3,00,000 for the financial year2009-10 and declared dividend of Rs.60,000. Calculate the carrying amount of investment in seperate financial statement of Grand softex Ltd and in consolidated financial statement on 31-3-2010.
Pls help me out by giving the solution with explanation.

CA Kishore Tallam

CA Kishore Tallam (Expert)
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11 April 2012 In Standalone FSs:
As per para 12 of AS 13, if any pre acquisition Dividend is received by the Company, then such dividend shall be reduced from the cost of the investment. Assuming the dividend declared is for all shareholders, then dividend attributable to Grand is Rs. 50,000*30% = Rs. 15,000.
Carrying amount of investment = Rs. 200,000 - Rs. 15,000 = Rs. 185,000.
The dividend declared for 2009-10 will be treated as income in the hands of Grand and is not taxable in Income tax (both under normal profit and 115JB case).
In Consol Financial Statements also, the carrying amount will be the same.

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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11 April 2012 Dear Author,

The treatment as per AS 23 will be as follows-

Dividend paid for the year 2008-09- Rs 50000, Dividend earned by Grand Softex- 30% of Rs. 50000 i.e Rs. 15000
Out of Rs. 15000 earned by grand, 2 months(upto 31/05/2009) dividend of Rs. 2500 will be for pre acquisition and be reduced from cost.

Hence, cost as on 31/03/2009 will be Rs.200000 - Rs 2500 = Rs.197500

Remaining amount Rs. 12500 will go t P&L for 2008-09
entire Dividind for 2009-10 will be credited to P&L A/c.

Querist : Anonymous

Querist : Anonymous (Querist)

11 April 2012 sir, still im not cleared with the carrying amount on the consolidated balancesheet. bcoz, the answer given as Rs. 275000.

CA Kishore Tallam

CA Kishore Tallam (Expert)
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11 April 2012 In the second year, the carrying amount of investment in CFS will be Rs. 185,000 + 30% of Rs. 60,000 = Rs. 18,000 = Rs. 203,000.
If the answer is different, please provide the total details of the problem.

Querist : Anonymous

Querist : Anonymous (Querist)

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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11 April 2012 Dear Author,

If are applying equity method as per AS-23 then carrying amount will be as under-

There is no relevance of dividend distributed for F.Y. 2008-09, since the shares are acquired after F.Y. 2008-09 i.e as on 01/06/2009.

Further, Earning of Rs. 15000(30% of Rs. 300000 for 2 months)which is related to the period from 01/04/2009 to 31/05/2009 will have any impact on carrying amount.

The earning earned after 01/06/2009 will be added to the carrying amount.
i.e carrying amount will be-

Rs. 200000+75000(30% of Rs.300000/12*10)=275000.

Querist : Anonymous

Querist : Anonymous (Querist)

11 April 2012 thanq sir, now my confusion is cleared