1. Investments in
Associates
Examples

2.  01.06.27 A acquires 10% interest in B for Rs 150 crores.
 The fair value of B’s net assets was Rs 500 crores
 Accounted 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

3. Goodwill arising on the acquisition:
(Rs in crores)
Original Investment 150
Share of the fair value of net assets 50
Goodwill arising on first tranche 100
Multi stage investments

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