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March 2024

Accounting Of Losses in an Associate

By Dolphy D’Souza, Chartered Accountant
Reading Time 9 mins


Hold Co has a 25 per cent investment in Low Co. Hold Co accounts for investment in Low Co as an associate in its consolidated financial statements (CFS) because it has representation on the board of Low Co and exercises significant influence.

Low Co has incurred significant losses, far exceeding the equity of the owners. In the CFS, Hold Co has absorbed its proportion of the losses to the extent of the cost of investment, making it zero, and the remaining unabsorbed losses are not accounted for, as equity-accounted investments cannot be negative. This is in compliance with the requirements of paragraph 38 of Ind AS 28 Investments in Associates and Joint Ventures.

Low Co has prepared its business plan and it requires further capitalisation by all the equity owners in proportion to their shareholding. Hold Co would also like to further invest in Low Co, considering the strategic benefits arising out of investments in Low Co.

Consider the following simple example:

1. Hold Co has 25 per cent equity share in Low Co. Other investors own the remaining 75 per cent equity.

2. Hold Co had invested ₹100 million for the 25 per cent equity shares.<

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