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

Kiran Ltd acquired a 50% interest in Lotus Ltd, a jointly controlled entity, on 1 April 2025 for ₹60,00,000. On that date, Lotus Ltd's net assets were ₹100,00,000 (book value equal to fair value). During 2025-26, Lotus Ltd earned a profit of ₹20,00,000 and paid no dividend. In Kiran Ltd's consolidated financial statements, using proportionate consolidation, the goodwill on acquisition and the venturer's share of post-acquisition profit are respectively:

Goodwill is ₹10,00,000 and the share of post-acquisition profit is ₹10,00,000. Kiran's 50% share of net assets is ₹50 lakh against a cost of ₹60 lakh, so the excess is goodwill, and 50% of Lotus Ltd's ₹20 lakh profit accrues post-acquisition.

  1. AGoodwill ₹10,00,000; share of profit ₹10,00,000Correct
  2. BGoodwill ₹10,00,000; share of profit ₹20,00,000
  3. CCapital reserve ₹10,00,000; share of profit ₹10,00,000
  4. DGoodwill ₹60,00,000; share of profit ₹10,00,000

Explanation

Kiran's share of net assets = 50% × 1,00,00,000 = 50,00,000. Cost 60,00,000 exceeds this by 10,00,000, which is goodwill. Share of post-acquisition profit = 50% × 20,00,000 = 10,00,000. Treating the excess as capital reserve reverses the sign of the difference.

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