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

Tara Ltd holds a 40% interest in Delta JV, a jointly controlled entity, and has prepared consolidated statements by proportionate consolidation. During the year Tara Ltd sold an asset costing ₹5,00,000 to Delta JV for ₹7,50,000 (cost of the asset equal to its carrying amount). Delta JV still holds the asset at year end, and there is no indication of impairment. As per AS 27, what gain should Tara Ltd recognise in its consolidated statements on this sale, with the correct basis?

Tara Ltd should recognise ₹1,50,000. The total gain is ₹2,50,000, but while the jointly controlled entity retains the asset, AS 27 allows recognition only of the portion attributable to the other venturers, which is 60% of the gain; the 40% share of ₹1,00,000 is eliminated.

  1. A₹2,50,000, the full gain, as risks and rewards have been transferred
  2. B₹1,00,000, being its own 40% share of the gain
  3. C₹1,50,000, being the portion attributable to the other venturers' 60% interestCorrect
  4. DNil, as the asset has not been sold outside the venture

Explanation

Total gain = 7,50,000 - 5,00,000 = ₹2,50,000. AS 27 permits the venturer to recognise only the portion attributable to the other venturers' interests while the asset is retained by the venture. Other venturers hold 60%, so recognised gain = 60% × 2,50,000 = ₹1,50,000. The remaining ₹1,00,000 (Tara's 40%) is eliminated; recognising the full gain ignores this.

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