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ACCA Strategic Professional · Strategic Business Reporting (International) · Associates and joint arrangements

Zed, a joint operator, sells inventory to its joint operation for $600,000. The inventory cost Zed $450,000. Zed has a 40% interest in the joint operation, which has not yet sold any of the inventory to third parties at the year end. Applying IFRS 11 and IFRS 10 principles, how much profit on this sale can Zed recognise at the year end?

Zed recognises $90,000. The profit on the sale is $150,000, and while the inventory remains unsold to third parties, Zed recognises gains only to the extent of the other parties' 60% interest. Its own 40% share, $60,000, is eliminated as unrealised.

  1. A$90,000Correct
  2. B$150,000
  3. C$60,000
  4. DNil

Explanation

Total profit is $150,000. Under IFRS 11, when a joint operator sells assets to the joint operation, it recognises gains only to the extent of the other parties' interests. The other parties hold 60%, so profit recognised is 60% x $150,000 = $90,000. The $60,000 is Zed's own 40% share, which is unrealised.

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