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CMA Final · Corporate Financial Reporting · Accounting and Reporting of Joint Operation

Kiran Ltd is a 35% joint operator. It contributes to the joint operation a machine with carrying amount Rs 10,00,000 and recoverable amount Rs 7,00,000. The contribution is made at Rs 7,00,000, which evidences an impairment loss. Separately, it sells to the joint operation inventory costing Rs 2,00,000 for Rs 3,00,000 with no impairment evidence. What total net amount of gain or (loss) does Kiran recognise on the two transactions?

Kiran recognises a net loss of Rs 2,35,000. The Rs 3,00,000 impairment loss on the contributed machine is recognised fully. The Rs 1,00,000 inventory gain is recognised only to the extent of other parties' 65% interests, which is Rs 65,000. The net result is a loss of Rs 2,35,000.

  1. ALoss of Rs 2,35,000Correct
  2. BLoss of Rs 3,00,000
  3. CLoss of Rs 2,05,000
  4. DLoss of Rs 2,50,000

Explanation

Impairment losses on assets sold or contributed are recognised fully: Rs 3,00,000 loss. For the inventory, the gain of Rs 1,00,000 is recognised only to the extent of other parties' interests, 65%, giving Rs 65,000. Net = 65,000 - 3,00,000 = loss of Rs 2,35,000. Rs 2,05,000 would wrongly recognise only 35% of the gain.

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