Investments in Associates

Examples

Multi stage investments

01.06.27 A acquires 10% interest in B for Rs 150 crores. The fair value of B’s net assets was Rs 500 croresAccounted for as an available for sale investment.31.03.2008 A recognises an increase in fair value of Rs 50 crores

through equity. 01.04.2008 A acquires an additional 10% interest in entity B for Rs

200 crores.Achieves significant influence.FV of B’s Net Assets increases to Rs 1000 crores by this date.B records profits after dividends of Rs 100 crores between the two

dates.

Multi stage investments

Goodwill arising on the acquisition:(Rs in crores)

Original Investment150

Share of the fair value of net assets 50

Goodwill arising on first tranche 100

Multi stage investments

(Rs in crores)Second Investment 200Share of the fair value of net assets (10% of Rs 1000 crores) 100Goodwill arising on second tranche 100Total Goodwill 200

An adjustment is made on consolidation, by debiting AFS reserve and crediting the Investment by Rs 50 crores to reverse the increase in fair value recognised by entity A.

Investment in the associate included in the consolidated balance sheet Rs 360 crores: cost of Rs 350 crores plus the share of entity B’s profits net of dividends in the period for which the 10% investment

held (10% of Rs 100 crores). This share of B’s profits is credited to retained earnings in the consolidated accounts.