On 1 st April 20X1, Investor Ltd. acquires 35% interest in XYZ Ltd. thereby exercising significant influence over XYZ Ltd. Investor Ltd. has paid…

CA Final · Financial Reporting · MTP · May 2024
On 1 st April 20X1, Investor Ltd. acquires 35% interest in XYZ Ltd. thereby exercising significant influence over XYZ Ltd. Investor Ltd. has paid total consideration of 47,50,000 for acquisition of its interest in XYZ Ltd. At the date of acquisition, the book value of XYZ Ltd.'s net assets was - 90,00,000 and their fair value was - 1,10,00,000. Investor Ltd. has determined that the difference of 20,00,000 pertains to an item of property, plant and equipment (PPE) which has remaining useful life of 10 years. During the year, XYZ Ltd. made a profit of 9,00,000. XYZ Ltd. paid a dividend of 10,00,000 on 31 st March, 20X2. XYZ Ltd. also holds a long-term investment in equity securities. Under Ind AS, investment is classified as at FVTOCI in accordance with Ind AS 109 and XYZ Ltd. recognized an increase in value of investment by - 2,00,000 in OCI during the year. Ignore deferred tax implications, if any. Calculate the closing balance of Investor Ltd.'s investment in XYZ Ltd. as at 31 st March, 20X2 as per the relevant Ind AS.

Suggested Answer and Working Notes:

Calculation of Investor Ltd.'s investment in XYZ Ltd. under equity method: Particulars ₹ Acquisition of investment in XYZ Ltd. Share in book value of XYZ Ltd.'s net assets (35% of 90,00,000) 31,50,000 Share in fair valuation of XYZ Ltd.'s net assets [35% of (₹ 1,10,00,000 - 90,00,000)] 7,00,000 Goodwill on investment in XYZ Ltd. (balancing figure) 9,00,000 Cost of investment 47,50,000 Profit during the year Share in the profit reported by XYZ Ltd. (35% of 9,00,000) 3,15,000 Adjustment to reflect effect of fair valuation [35% of (₹ 20,00,000/10 years)] (70,000) Share of profit in XYZ Ltd. recognised in income by Investor Ltd. 2,45,000 Long term equity investment FVTOCI gain recognised in OCI (35% of 2,00,000) 70,000 Dividend received by Investor Ltd. during the year [35% of 10,00,000] (3,50,000) Closing balance of Investor Ltd.'s investment in XYZ Ltd. 47,15,000

Topics: Ind AS 28

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