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

Ravi Ltd holds a 40% interest in a jointly controlled entity, Sagar Ltd, and prepares consolidated financial statements. At year end, Sagar Ltd has fixed assets of ₹50,00,000, current assets of ₹30,00,000, long-term borrowings of ₹20,00,000 and current liabilities of ₹10,00,000. Under proportionate consolidation, the total assets that Ravi Ltd will add line by line for its share of Sagar Ltd are:

Ravi Ltd adds ₹32,00,000 of assets. Sagar Ltd's total assets are ₹80,00,000 (fixed ₹50 lakh plus current ₹30 lakh), and proportionate consolidation takes 40% of each asset line, not of net assets, giving ₹32,00,000.

  1. A₹20,00,000
  2. B₹32,00,000Correct
  3. C₹24,00,000
  4. D₹80,00,000

Explanation

Total assets of Sagar Ltd = 50,00,000 + 30,00,000 = 80,00,000. Ravi's share at 40% = 32,00,000. Option 24,00,000 is 40% of net assets (60,00,000), which is the wrong approach because proportionate consolidation adds assets and liabilities separately, not net.

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