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

Arun Ltd and Bharat Ltd jointly own a factory building and machinery acquired for a joint venture (jointly controlled assets). Arun Ltd has a 40% share in the asset and output. The jointly controlled asset cost Rs 50,00,000 and has accumulated depreciation of Rs 10,00,000. Joint expenses for the year were Rs 6,00,000, and Arun Ltd paid Rs 2,00,000 of these directly. In Arun's books, the amount of joint expenses to be recognised for the year is:

Arun Ltd recognises Rs 2,40,000 as expenses, being 40% of the Rs 6,00,000 joint expenses. The amount actually paid, Rs 2,00,000, does not decide the expense. The balance of Rs 40,000 is a liability to the co-venturer, so expense follows the share in the venture.

  1. ARs 2,40,000Correct
  2. BRs 2,00,000
  3. CRs 6,00,000
  4. DRs 3,60,000

Explanation

A venturer recognises its share of jointly incurred expenses: 40% of Rs 6,00,000 = Rs 2,40,000. The Rs 2,00,000 paid is only cash paid, not the share of expense; the Rs 40,000 difference is a liability payable to the co-venturer. Rs 3,60,000 wrongly uses 60%.

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