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

Sagar Ltd owns 40% of a jointly controlled entity, Tara Ltd. During the year Sagar sold goods costing Rs 6,00,000 to Tara for Rs 8,00,000. By year end Tara had sold 25% of these goods to outsiders and held the rest. In Sagar's consolidated financial statements (proportionate consolidation), the unrealised profit to be eliminated is:

The unrealised profit to eliminate is Rs 60,000. Profit on the sale is Rs 2,00,000, of which 75% remains unsold, giving Rs 1,50,000. Sagar eliminates only its 40% share of that amount, because under proportionate consolidation the venturer's share of the unrealised profit is removed.

  1. ARs 60,000Correct
  2. BRs 1,50,000
  3. CRs 1,20,000
  4. DRs 2,00,000

Explanation

Total profit = 8,00,000 - 6,00,000 = Rs 2,00,000. Unsold portion is 75%, giving unrealised profit Rs 1,50,000. Under AS 27 the venturer eliminates only its proportionate share: 40% x 1,50,000 = Rs 60,000. Rs 1,50,000 ignores the share; Rs 1,20,000 uses 60% of 2,00,000.

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