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

Uday Ltd has a 25% interest in a joint operation. It sells machinery with a carrying amount of ₹12,00,000 to the joint operation for ₹9,00,000. The price shows that the machinery is impaired, and the fall in value is a real impairment. What loss does Uday recognise in the current period?

₹3,00,000. When a sale to a joint operation provides evidence of impairment or a reduction in net realisable value, the joint operator recognises the loss in full. The loss is the carrying amount of ₹12,00,000 less the sale price of ₹9,00,000, with no apportionment.

  1. A₹3,00,000, the full lossCorrect
  2. B₹2,25,000, being 75% of the loss
  3. C₹75,000, being 25% of the loss
  4. DNil, because the loss is deferred until resale

Explanation

Where a sale to a joint operation provides evidence of a reduction in net realisable value or an impairment loss, the joint operator recognises the loss fully. The loss is ₹12,00,000 − ₹9,00,000 = ₹3,00,000. Apportioning it by the other parties' share is wrong, because that treatment applies only to gains on a sale.

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