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CA Intermediate · Advanced Accounting · AS 27 Financial Reporting of Interests in Joint Ventures

Alpha Ltd and Beta Ltd jointly control Gamma Ltd, a jointly controlled entity. Alpha holds 40% of Gamma and prepares consolidated financial statements. Gamma's net profit for the year is Rs 50,00,000, of which Rs 10,00,000 was paid as dividend. Under AS 27, in Alpha's consolidated financial statements, the amount of Gamma's income included (line by line, proportionate consolidation) is:

Alpha includes Rs 20,00,000, being 40% of Gamma's Rs 50,00,000 profit, through proportionate consolidation. AS 27 requires the venturer's share of each item of the jointly controlled entity to be combined line by line in consolidated statements, not just the dividend received.

  1. ARs 20,00,000 share of profit, with Gamma's items combined at 40% line by lineCorrect
  2. BRs 4,00,000 dividend only
  3. CRs 50,00,000 combined in full
  4. DRs 16,00,000 share of retained profit only

Explanation

In consolidated statements AS 27 requires proportionate consolidation for a jointly controlled entity: the venturer's share (40%) of each asset, liability, income and expense is combined line by line. Share of profit = 40% x 50,00,000 = Rs 20,00,000. Taking only the dividend (Rs 4,00,000) is the cost-method treatment used in separate statements, so it is wrong here.

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