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

Meera Ltd has a 30% share in a jointly controlled entity, JV Ltd. During the year Meera sold goods costing ₹6,00,000 to JV Ltd for ₹8,00,000. At year-end JV Ltd still holds half of these goods in its inventory. In Meera's consolidated financial statements, what unrealised profit should be eliminated?

The unrealised profit to be eliminated is ₹30,000. Total profit on the sale is ₹2,00,000, half of the goods remain unsold giving ₹1,00,000 unrealised, and Meera eliminates only its 30% share of that. Eliminating the full ₹1,00,000 would ignore the proportionate method.

  1. A₹30,000Correct
  2. B₹1,00,000
  3. C₹60,000
  4. D₹70,000

Explanation

Total profit = ₹8,00,000 - ₹6,00,000 = ₹2,00,000. Half remains unsold, so unrealised profit = ₹1,00,000. AS 27 requires eliminating only the venturer's share for sales to the JV: 30% × ₹1,00,000 = ₹30,000. Eliminating ₹1,00,000 ignores the proportion.

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