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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, Sun Ltd, and prepares consolidated financial statements. Sun Ltd's balance sheet shows fixed assets Rs 50,00,000 and current liabilities Rs 10,00,000. Under AS 27, how will Ravi Ltd report its interest in its consolidated statements (proportionate consolidation)?

Ravi Ltd adds fixed assets of Rs 20,00,000 and current liabilities of Rs 4,00,000 line by line. AS 27 requires proportionate consolidation in consolidated statements, so only the venturer's 40% share of each item is combined, not the whole amount.

  1. AFixed assets Rs 20,00,000 and current liabilities Rs 4,00,000 added line by lineCorrect
  2. BFixed assets Rs 50,00,000 and current liabilities Rs 10,00,000 added line by line
  3. CSingle line investment at cost
  4. DSingle line investment under the equity method

Explanation

In consolidated financial statements, AS 27 requires proportionate consolidation for a jointly controlled entity. The venturer adds its share line by line: 40% of 50,00,000 = 20,00,000 and 40% of 10,00,000 = 4,00,000. Full line-by-line addition is the AS 21 method for subsidiaries, so it is wrong here.

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