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

Rohan Ltd is a venturer holding 50% in the jointly controlled entity JV Ltd. During the year Rohan sold goods costing Rs 6,00,000 to JV Ltd for Rs 8,00,000. JV Ltd still holds all these goods at year end. In Rohan's consolidated financial statements under AS 27, the unrealised profit to be eliminated is:

The unrealised profit to be eliminated is Rs 1,00,000. The total profit is Rs 2,00,000, and since Rohan holds 50%, only its own half is unrealised while the other venturer's half is treated as realised, as AS 27 provides for sales to a jointly controlled entity.

  1. ARs 1,00,000Correct
  2. BRs 2,00,000
  3. CRs 4,00,000
  4. DNil

Explanation

Profit on the sale = 8,00,000 - 6,00,000 = Rs 2,00,000. When a venturer sells to a jointly controlled entity, it recognises only that portion of profit attributable to the other venturers, and the venturer's own share is eliminated. Elimination = 50% x 2,00,000 = Rs 1,00,000. Eliminating the full Rs 2,00,000 is the key error, as it ignores that the other venturers' share is realised.

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