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

Ishan Ltd holds 50% of Jyoti Ltd, a jointly controlled entity. During the year Ishan sold goods costing Rs 6,00,000 to Jyoti for Rs 8,00,000. Jyoti still holds all of these goods at year end. In consolidated statements using proportionate consolidation, what unrealised profit is eliminated?

The amount eliminated is Rs 1,00,000. The unrealised profit on the sale is Rs 2,00,000, and under AS 27 the venturer recognises in the consolidated statements only the portion attributable to the other venturers' interest, which is 50% of Rs 2,00,000.

  1. ARs 2,00,000
  2. BRs 1,00,000Correct
  3. CRs 4,00,000
  4. DRs 8,00,000

Explanation

Total profit on sale = 8,00,000 - 6,00,000 = 2,00,000, all unrealised as the goods remain unsold. Under AS 27, the venturer recognises only that portion attributable to the other venturers' interest, i.e. 50% x 2,00,000 = 1,00,000, is eliminated... Ishan's own 50% share is retained as unrealised too in practice only for the other venturers' part when sale is to the JCE, so the amount recognised is the part attributable to others.

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