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

Chitra Ltd and Devam Ltd jointly own a pipeline under a contractual arrangement, sharing its output and costs in the ratio 60:40. In FY 2025-26 the pipeline's total operating expenses were Rs 50,00,000, all paid by Devam Ltd, and Chitra Ltd is to reimburse its share. In Chitra Ltd's own financial statements, what expense and treatment is correct for this?

Chitra Ltd should recognise its 60% share of the expenses, Rs 30,00,000, and show a liability to Devam Ltd for the same amount because Devam paid the whole cost. AS 27 requires a venturer to account for its share of jointly incurred expenses and related liabilities.

  1. ARs 50,00,000 as expense with no liability
  2. BRs 20,00,000 as expense with a receivable from Devam Ltd
  3. CRs 30,00,000 as expense with a liability to Devam LtdCorrect
  4. DRs 30,00,000 as expense, with Devam Ltd's balance ignored

Explanation

For jointly controlled assets, a venturer recognises its share of expenses incurred jointly. Chitra's share is 60% of 50,00,000 = Rs 30,00,000. Since Devam paid, Chitra owes Devam Rs 30,00,000, which is a liability. The Rs 20,00,000 figure is Devam's share, not Chitra's.

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