Simple Explaination of Accounting Standard 23

Accounting for investment in associates in consolidated financial statements

This accounting standard 23 ( AS 23 under Indian GAAP ) is very helpful to cooperate type investors. In this standard, the simple rule is that investor must record all investment in associates. Here, I want to explain associates. It is not subsidiary company but if an investor invests his fund‘s 20% or more in any other company then it becomes his associate. There are two methods to record investment in associate.

Ist method: - Equity method:-

Under this method, investment in associate is record on the real cost of investment. Equity means total assets minus liabilities and it is very simple to understand for accountant because what amount is paid for getting investment in associate will only recorded in books of investor.

2nd method - Non equity method:-

After 1 June 2008, non equity method is also adopted, it is related with inflation accounting and if any fluctuation arise between the time of recording and the time of actual purchase, then this will also be recorded .

Showing it in consolidated balance sheet

If you have studied other accounting standard regarding subsidiary and holding company. You can understand what is consolidated balance sheet. Here, I brief introduction consolidated balance sheet shows all assets and liabilities of both holding and subsidiary company and showing investment relating to associate in consolidated balance sheet is not difficult.

When you have recorded these type of investment its balance become automatically asset and this will go to asset side of balance sheet consolidated.