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CA Final · Financial Reporting · Ind AS 28 Investments in Associates and Joint Ventures

Rudra Ltd holds 40% of Sagar Ltd, an associate. During the year Rudra sold goods costing Rs 40 lakh to Sagar for Rs 50 lakh. At year end, 60% of these goods were still held by Sagar. Sagar reported a profit of Rs 100 lakh. What is Rudra's share of the associate's profit to be recognised in its consolidated profit or loss after eliminating unrealised profit?

Rudra recognises Rs 37.6 lakh. Its 40% share of Sagar's profit is Rs 40 lakh. Unrealised profit on goods still held is Rs 6 lakh (Rs 10 lakh margin x 60%), and only Rudra's 40% share, Rs 2.4 lakh, is eliminated because the associate is not controlled.

  1. ARs 40.0 lakh
  2. BRs 37.6 lakhCorrect
  3. CRs 34.0 lakh
  4. DRs 42.4 lakh

Explanation

Unrealised profit in closing stock = (50 - 40) x 60% = Rs 6 lakh. The sale is downstream, and only the investor's interest in the associate is eliminated: 40% x 6 = Rs 2.4 lakh. Share of profit = 40 - 2.4 = Rs 37.6 lakh. Rs 34 lakh wrongly eliminates the full Rs 6 lakh.

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