Accounting for investments in associates.

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Aravind.. (Querist)
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11 September 2011 Good morning,

The company regarding which i have doubt is a private limited company. It has thirty percent shareholding in another private ltd company and thirty eight percent holding in a public limited company. All three companies prepare separate financial statements. So will the standard on associates get applied in this case? Should the profit or loss in the associates be accounted in the investor?
Please clarify me in this regard.
Thanks in advance.

CA Ravi Sisodia

CA Ravi Sisodia (Expert)
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11 September 2011 this pvt company have two associates it means companies prepare separate financial statements with two associates as per AS-23.

Aravind..

Aravind.. (Querist)
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11 September 2011 My doubt is that even if every company prepare its own financial statements, should the investor prepare financial statement showing the effect of its associates which are preparing its own financial statements. AS-23, specifically has a wording that the standard doesnot apply to investor which prepares separate financial statements.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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20 September 2011
AS 23 defines associate as an enterprises in which the investor has significant influence. Significant influence means the power to participate in the financial and operating decisions of the associate.

By merely holding more than 20% share in a company, the investor does not obtain significant influence. For the purpose of AS 29, significant influence can be identified by one or more of the following criteria:

a. Representation in the Board of Directors

b. Participation in the policy making body

c. Material transactions between investor and investee.

d. Inter-change of managerial personnel.

e. Provision of technical information.

If any of the above criteria is fulfilled only then the AS will be applicable. Merely by purchasing 20% or more shares by the investor, the investor & the investee do not become associates.

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 well, the AS -23 is applicable only when the company is preparing the Consolidated Financial Statements as per AS-21

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 Also as per AS -21 preparation of consolidated statement is not mandatory

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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03 October 2011 AS-21 is to be followed only when the Consolidated financial statements are prepared by the company

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