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A Ltd. holds 60% interest in a joint operation. The joint operation sells an asset to A Ltd. for ₹80 — the asset had carrying value ₹100 in the JO's books. How does A Ltd. record the purchase?
ARecord asset at ₹100 (full carrying value of JO)
BRecord asset at ₹92 = purchase price ₹80 + A's share of unrealised loss ₹12 (60% × ₹20); do not recognise share of JO loss until resold
CRecord asset at ₹80
DRecord asset at ₹100 and recognise share of loss immediately
Answer & Solution
Correct answer: B. Record asset at ₹92 = purchase price ₹80 + A's share of unrealised loss ₹12 (60% × ₹20); do not recognise share of JO loss until resold
For purchase from a joint operation, the joint operator defers its share of the loss until resale to a third party. A's recorded cost = purchase price (₹80) + A's share of the loss the JO recorded (₹20 × 60% = ₹12) = ₹92. The JO loss is only recognised when A on-sells.
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