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

Kiran Ltd (a venturer) sold goods costing Rs 6,00,000 to its jointly controlled entity, Lotus Ltd, for Rs 8,00,000. Kiran Ltd holds 30% in Lotus Ltd and consolidates it proportionately. At year end, Lotus Ltd still holds all these goods as inventory. In Kiran Ltd's consolidated financial statements, what unrealised profit is eliminated?

The amount eliminated is Rs 60,000. The profit on the sale to the jointly controlled entity is Rs 2,00,000, and while goods remain unsold, the venturer eliminates its own 30% share of that profit. The remaining 70% relates to the other venturers' interests and is recognised.

  1. ARs 60,000Correct
  2. BRs 1,40,000
  3. CRs 2,00,000
  4. DRs 6,00,000

Explanation

Total profit on the sale is 8,00,000 - 6,00,000 = Rs 2,00,000. Under AS 27 the venturer recognises only the portion attributable to the other venturers' interests; the portion attributable to its own 30% share is eliminated. 30% of 2,00,000 = Rs 60,000. Rs 1,40,000 is the 70% share, which is recognisable, not eliminated.

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