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

Ravi Ltd is a joint operator with a 30% share in a joint operation. Ravi buys goods from the joint operation for Rs 5,00,000. The goods cost the joint operation Rs 4,00,000. At year-end Ravi has resold none of them to third parties. What is the correct treatment in Ravi's books under Ind AS 111?

Ravi must not recognise its share of the gain on the purchase until it resells the goods to a third party. Since none has been resold by year-end, nothing is recognised. The rule for purchases defers the joint operator's share of gains and losses until external resale.

  1. ARecognise its 30% share of the Rs 1,00,000 gain, Rs 30,000, immediately
  2. BRecognise the entire gain of Rs 1,00,000 immediately
  3. CRecognise 70% of the gain, Rs 70,000, because that belongs to other parties
  4. DDo not recognise its share of the gain until the goods are resold to a third partyCorrect

Explanation

On a purchase of assets from a joint operation, the joint operator does not recognise its share of the gains and losses until it resells the assets to a third party. No resale has happened, so no share of the gain is recognised. The 70% option wrongly applies the rule for sales to a joint operation.

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