CA Intermediate · Advanced Accounting · AS 27 Financial Reporting of Interests in Joint Ventures
Indra Ltd has a 25% interest in Jai Ltd, a jointly controlled entity. Indra Ltd bought its stake in the year for Rs 6,00,000. Jai Ltd later became subject to severe long-term restrictions on transferring funds to Indra Ltd, and Indra Ltd lost joint control and no longer holds significant influence. Under AS 27, how should Indra Ltd account for its interest from the date it ceases to have joint control?
From the date joint control ceases, the venturer stops proportionate consolidation. Since Indra Ltd also has no significant influence, the interest is not an associate and is accounted for as an investment under AS 13. It is neither written off automatically nor treated as a subsidiary.
- AContinue proportionate consolidation until the interest is sold
- BAccount as an investment under AS 13, if it is not an associate, in the consolidated financial statementsCorrect
- CWrite off the Rs 6,00,000 immediately to the statement of profit and loss
- DTreat it as a subsidiary and fully consolidate
Explanation
AS 27 requires the venturer to discontinue proportionate consolidation from the date it ceases to have joint control. If it retains significant influence, it accounts under AS 23 as an associate; otherwise it accounts as an investment under AS 13. Here significant influence is lost, so AS 13 applies. Full consolidation would require control, which is absent.
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