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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 with Tej Ltd, and Sagar's share in the joint operation is 40%. Sagar sells inventory costing Rs 6,00,000 to the joint operation for Rs 8,00,000. The sale gives no evidence of any impairment or reduction in net realisable value. The joint operation still holds all the inventory at year-end. Under Ind AS 111, how much gain should Sagar recognise on this sale in its own books for the year?

Sagar recognises a gain of Rs 1,20,000. The total gain is Rs 2,00,000, and a joint operator recognises it only to the extent of the other parties' interests, which are 60%. Its own 40% share of Rs 80,000 is not recognised until the inventory is sold outside.

  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. 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 is Sagar's own 40% share, which is the portion that must be eliminated.

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