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Applicability of as 23

Jay Bodha (Employed) (139 Points)

01 August 2011

hi,

i want to ask if AS 23 is attarcted if

A company is preparing Consolidated Financial Statement under AS 21

and it has invested as a partner in two fims and its share in both the firms is more rhan 25 %

so can we say that such an investment is an investment in associates

Please Clearify

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4 Replies

CA Siddhartha Bhardwaj (Proprietor at Siddhartha Bhardwaj & Associates Chartered Accountants) (33456 Points)
Replied 19 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.

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shakuntala chhangani (FCA Course co-ordinator WIRC coaching centre) (2525 Points)
Replied 03 November 2011

Hi Jay, the answer to ur query is :

if an investor holds, directly or indirectly through subsidiary(ies), 20%or more of the voting power of the investee, it is presumed that the investor has significant influence. However, in spite of holding 20% or more of voting power of associate, the investor does not enjoy significant influence, then the presumption of criteria of 20% or more of voting power is null and void.

The existence of significant influence by an investor is usually evidenced in one or more of the following ways:

(a) Representation on the board of directors or corresponding governing body of the investee;

(b) participation in policy making processes;

(d) interchange of managerial personnel; or

(e) provision of essential technical information.

Regards, CA Shakuntala Chhangani

CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)
Replied 06 November 2011

Agreed to Siddharth and Shakuntanla. Presence of significant influence is required for establishing associate relationship and Presence of control is required for establishing subsidiary relationship.

Percentage holding is irrelevant for Subsidiary and Associate relationship.

Thanks