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

Mehta Engineering Ltd, a joint operator with a 25% interest, contributes equipment to a joint operation. The equipment's carrying amount is Rs 10,00,000 and its fair value is Rs 7,00,000. The fair value fall is due to a reduction in the net realisable value of the equipment. How much loss should Mehta recognise?

Mehta recognises the full loss of Rs 3,00,000. When a contribution of assets to a joint operation shows a reduction in net realisable value or an impairment, the joint operator must recognise that loss fully rather than only the other parties' share.

  1. ARs 75,000, being 25% of the loss
  2. BRs 2,25,000, being 75% of the loss
  3. CNil, as the loss is deferred until the equipment is resold
  4. DRs 3,00,000, the full lossCorrect

Explanation

Loss = 10,00,000 - 7,00,000 = Rs 3,00,000. Where a sale or contribution provides evidence of a reduction in net realisable value or an impairment loss, the joint operator recognises that loss fully. The proportionate approach used for gains does not apply. Hence the full Rs 3,00,000 is charged.

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