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

Meera Ltd holds a 25% share in a joint operation. It purchases from the joint operation an asset that the joint operation had carried at Rs 8,00,000, paying Rs 5,00,000. The transaction gives evidence that the asset's net realisable value has fallen to Rs 5,00,000, an impairment loss of Rs 3,00,000 in the joint operation. How much of this loss should Meera recognise?

Meera recognises Rs 75,000. Where a purchase from a joint operation shows the asset's net realisable value has fallen or it is impaired, the joint operator recognises its share of the loss. Its share is 25% of the Rs 3,00,000 loss, and the deferral rule for gains does not apply.

  1. ARs 75,000Correct
  2. BRs 3,00,000
  3. CRs 2,25,000
  4. DNil until resale

Explanation

When a purchase from a joint operation gives evidence of a reduction in net realisable value or an impairment loss, the joint operator recognises its share of those losses. The loss is Rs 3,00,000 and Meera's share is 25%, so it recognises Rs 75,000. Recognising the whole loss applies the rule for sales to the joint operation, which is wrong here.

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