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

Meru Ltd holds a 40% share in a joint operation, JO-2, and is a joint operator. During the year Meru Ltd buys inventory from JO-2 for Rs 15,00,000; JO-2's cost of that inventory was Rs 12,00,000. At the year end Meru Ltd has not resold any of this inventory to third parties. How much of its share of JO-2's profit on this transaction can Meru Ltd recognise at year end?

Meru Ltd recognises nothing at year end. A joint operator buying assets from its joint operation cannot recognise its share of the gain until it resells those assets to a third party. Since the inventory is unsold, the Rs 1,20,000 share of profit is deferred.

  1. ARs 1,20,000
  2. BRs 1,80,000
  3. CRs 3,00,000
  4. DRs 0Correct

Explanation

Under Ind AS 111 (B36), when a joint operator purchases assets from the joint operation, it does not recognise its share of the gain until it resells the assets to a third party. The profit is Rs 3,00,000 and Meru's 40% share is Rs 1,20,000, but this is deferred because nothing has been resold. Recognising Rs 1,20,000 would be wrong.

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