As-23

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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.

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.

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.


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Querist : Anonymous

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

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.

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Querist : Anonymous

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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.
this is the complete details of the problem

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.

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Querist : Anonymous

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11 April 2012 thanq sir, now my confusion is cleared


11 April 2012 The answer 2,75,000 is correct



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