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

Kiran Ltd holds 50% in a jointly controlled entity, Mehta Pvt Ltd, and prepares consolidated financial statements using proportionate consolidation. Mehta's balance sheet shows fixed assets Rs 80,00,000, current assets Rs 30,00,000, long-term borrowings Rs 40,00,000, current liabilities Rs 20,00,000. Kiran also owes Mehta Rs 4,00,000 included in Mehta's current assets. Kiran's total payable to Mehta is shown in Kiran's current liabilities. Ignoring other items, by how much do Kiran's consolidated current assets increase from Mehta's after eliminating intragroup balances?

Consolidated current assets increase by Rs 13,00,000. Kiran includes 50% of Mehta's current assets, Rs 15,00,000, and eliminates its own share of the intragroup balance, 50% of Rs 4,00,000 or Rs 2,00,000. Proportionate consolidation removes only the venturer's proportionate share, not the whole balance.

  1. ARs 13,00,000Correct
  2. BRs 15,00,000
  3. CRs 11,00,000
  4. DRs 28,00,000

Explanation

Kiran's share of Mehta's current assets = 50% of Rs 30,00,000 = Rs 15,00,000. The Rs 4,00,000 receivable from Kiran is a balance with the venturer; only the venturer's share (50% = Rs 2,00,000) is eliminated, as AS 27 eliminates the share of the balance. Increase = 15,00,000 - 2,00,000 = Rs 13,00,000. Rs 11,00,000 wrongly eliminates the full Rs 4,00,000.

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