A Ltd. invested - 1,00,000 to acquire 10% stake (Investment I) in B Ltd. and later invested - 3,00,000 to acquire additional 20% (Investment II).…

As per para 3 of AS 23 an associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture of the investor. Significant influence may be gained by share ownership, statute or agreement. As regards share ownership, 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, unless it can be clearly demonstrated that this is not the case. In this case, A Ltd. has invested 30% in B Ltd. so B Ltd. is to be considered as an associate of A Ltd. The goodwill arising on the acquisition of the associate will be computed as follows: Particulars ₹ Investment I 1,00,000 Share of net assets (10 percent of 7,50,000) (75,000) Goodwill (A) 25,000 Investment II 3,00,000 Share of net assets (20 percent of 12,50,000) (2,50,000) Goodwill (B) 50,000 Total goodwill (A + B) 75,000