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

Farida Ltd holds 50% of a jointly controlled entity, Gati Ltd, and uses proportionate consolidation. During the year Farida sold goods costing Rs 6,00,000 to Gati for Rs 8,00,000. At year end Gati still holds 50% of these goods in its stock. Ignoring tax, what unrealised profit must Farida eliminate in its consolidated statements?

Farida should eliminate Rs 50,000. The profit on sale is Rs 2,00,000, half of the goods remain unsold giving unrealised profit of Rs 1,00,000, and under proportionate consolidation the venturer eliminates only its own 50% share of that unrealised profit.

  1. ARs 1,00,000
  2. BRs 50,000Correct
  3. CRs 2,00,000
  4. DRs 25,000

Explanation

Total profit on the sale is 8,00,000 - 6,00,000 = Rs 2,00,000. Unsold portion is 50%, so unrealised profit is Rs 1,00,000. Farida may recognise only the part relating to other venturers' interest, so it eliminates its own 50% share, i.e. Rs 50,000. Rs 1,00,000 ignores the venturer's share.

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