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AS 23: Accounting for Investments in Associates in Consolidated Financial Statements

A professional application note for accounts teams: what the standard controls, where it appears in company accounting, how to apply it and what evidence reviewers expect. Animated notes with Play, Pause, Replay, English and Hindi voice options are included below.

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AS 23: Accounting for Investments in Associates in Consolidated Financial Statements: interactive explanation

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Professional scope: This is an implementation-oriented explanation for accountants, finance managers, controllers and reviewers responsible for company accounts.

1. What this standard controls

An investment in an associate is generally accounted for using the equity method in consolidated financial statements when significant influence exists.

Current position: Included in the ICAI Accounting Standards framework, subject to entity applicability, notified rules and later amendments.

2. Where it appears in the real accounting world

0120%–50% holdings and board influence
02Share of associate profit or loss
03Upstream and downstream transactions
04Impairment and disposal of associate interest

3. Practical application workflow

  1. Assess significant influence using all facts, not percentage alone.
  2. Determine acquisition cost and investor share of net assets.
  3. Recognise post-acquisition share of profit/loss and reserve movements.
  4. Eliminate investor share of unrealised profits where required.
  5. Review impairment and changes in influence.

4. Real-world application example

An investor owns 30% and participates in policy decisions. Its consolidated carrying amount increases by its share of associate profit, reduced by dividends received and relevant unrealised-profit adjustments.

5. Journal-entry and accounting record pattern

Share of profitDr Investment in associate / Cr Share of profit of associate.
DividendDr Bank / Cr Investment in associate under equity method.

Entry wording is illustrative. Actual accounts, tax effects, dimensions and narration depend on the entity’s chart of accounts and facts.

6. Month-end and year-end control file

Controls to operate

  • Influence assessment memo.
  • Associate reporting pack and policy alignment.
  • Equity-method roll-forward.
  • Related transaction and unrealised-profit review.
  • Impairment indicator assessment.

Common errors and red flags

  • Using cost method in consolidated accounts without basis.
  • Treating dividends as additional income under equity method.
  • Ignoring different accounting policies.
  • No elimination of relevant unrealised profit.
  • Failing to reassess influence after ownership changes.

7. Reviewer questions

  1. Does significant influence exist?
  2. What is the post-acquisition profit share?
  3. Are policies and dates sufficiently aligned?
  4. Are investor-associate transactions adjusted?
  5. Is impairment indicated?

Related standards: AS 13, AS 18, AS 21, AS 28

Authoritative reference:

Before approving a material conclusion, check the latest ICAI compendium, notified Companies (Accounting Standards) Rules, entity applicability and subsequent amendments.

ICAI Accounting Standards Compendium →
Companies (Accounting Standards) Rules and amendments →

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Professional note: This educational resource does not replace entity-specific analysis, the latest notified standard, law, regulation, audit judgment or professional advice.