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

Ishan Ltd owns 30% of Tarang Ltd, a jointly controlled entity consolidated proportionately. During the year Ishan Ltd sold goods costing Rs 8,00,000 to Tarang Ltd for Rs 10,00,000. Tarang Ltd still holds all these goods at year end. What amount of unrealised profit should Ishan Ltd eliminate in the consolidated statements?

Ishan Ltd should eliminate Rs 60,000. The profit on the sale is Rs 2,00,000 and all goods remain unsold with the joint venture. Under AS 27 the venturer recognises only the portion of profit attributable to others' interests, so the share of profit relating to its own 30% interest is eliminated, giving Rs 60,000.

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

Explanation

Total profit on the sale = 10,00,000 - 8,00,000 = 2,00,000. All goods are unsold by the joint venture, so the whole profit is unrealised, but only the venturer's share is eliminated: 30% x 2,00,000 = 60,000. Rs 1,40,000 is the 70% share, which is wrongly eliminated.

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