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

Sagar Ltd is a joint operator in a joint operation in which it holds a 40% share, the other parties together holding 60%. Sagar sells inventory costing Rs 6,00,000 to the joint operation for Rs 8,00,000. The inventory is still held by the joint operation at year end and there is no sign of any fall in its net realisable value. How much gain should Sagar recognise on this sale in its own books at year end, under Ind AS 111?

Sagar should recognise a gain of Rs 1,20,000. The total gain is Rs 2,00,000, and under Ind AS 111 a joint operator recognises gains on sales to the joint operation only to the extent of the other parties' 60% interest.

  1. ARs 1,20,000Correct
  2. BRs 80,000
  3. CRs 2,00,000
  4. DNil

Explanation

On a sale to a joint operation, the joint operator recognises the gain only to the extent of the other parties' interests. Total gain is 8,00,000 - 6,00,000 = Rs 2,00,000. The other parties hold 60%, so the recognised gain is 60% x 2,00,000 = Rs 1,20,000. Rs 80,000 is wrong because it uses Sagar's own 40% share, which is the part that stays unrealised.

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