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

Rajan Infra Ltd is a joint operator in a joint operation with Sethi Builders Ltd, and the two share interests equally (50:50). Rajan sells a machine to the joint operation for Rs 12,00,000. The machine's carrying amount in Rajan's books is Rs 9,00,000. There is no evidence of impairment or reduction in net realisable value. How much gain should Rajan recognise on this sale in its own financial statements?

Rajan recognises Rs 1,50,000. The total gain is Rs 3,00,000, but because Rajan is a joint operator, it recognises the gain only to the extent of the other party's 50% interest. The remaining half is not recognised on the sale.

  1. ARs 3,00,000, the full gain
  2. BRs 1,50,000, being Sethi's 50% share of the gainCorrect
  3. CNil, because the gain is deferred until the joint operation resells the machine
  4. DRs 1,50,000 recognised as a deduction from the cost of the machine

Explanation

Gain on sale = 12,00,000 - 9,00,000 = Rs 3,00,000. Under the Ind AS 111 guidance on sales or contributions of assets to a joint operation, the joint operator recognises gains only to the extent of the other parties' interests. The other party holds 50%, so the gain recognised is 3,00,000 x 50% = Rs 1,50,000. Recognising the full gain ignores Rajan's own 50% share.

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