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K Ltd. prepares its financial statements to 31st March each year. The financial statements are approved for issue on 25th May. On 1st April 20X1, K…

CA Final · Financial Reporting · RTP · November 2026

K Ltd. prepares its financial statements to 31st March each year. The financial statements are approved for issue on 25th May. On 1st April 20X1, K Ltd. entered into a joint arrangement with Y Ltd. to jointly operate a delivery depot. Y Ltd. is located and has major customers in the same geographical region as K Ltd. K Ltd. and Y Ltd. each made the following payments in respect of the arrangement on 1st April 20X1: ₹ 25 million each to purchase a joint 25-year leasehold interest in a depot which was close to both K Ltd. and Y Ltd.'s business premises. This depot was to act as headquarters for the delivery vehicles. ₹ 7.5 million each to purchase a fleet of delivery vehicles. The vehicles have an expected useful life of five years, with no expected residual value. K Ltd. and Y Ltd. agreed to jointly use the delivery vehicles to deliver products to their customers and to share the operating costs of the depot equally. Any delivery charges to customers were levied by K Ltd. and Y Ltd. directly at the discretion of the individual entities. During the year ended 31st March 20X2, the total cash cost of operating the depot was ₹ 8 million. This was paid equally by K Ltd. and Y Ltd. In the year ended 31st March 20X2, K Ltd. charged its customers a total of ₹ 2 million in delivery charges. Required: Explain how the above transaction would be reported in the financial statements of K Ltd. for the year ended 31 March 20X2.

Suggested Answer and Working Notes:

The joint arrangement with Y Ltd. is a joint operation because K Ltd. and Y Ltd. have equal rights to the assets and joint obligations for the liabilities relating to the arrangement. In a joint operation, the operators include their share of any jointly held assets. Therefore, the property, plant and equipment of K Ltd. at 31st March 20X2 will include: Leasehold property of ₹ 25 million x 24 years / 25 years = ₹ 24 million Plant and equipment of ₹ 7.5 million x 4 years / 5 years = ₹ 6 million In a joint operation, the operators include their share of jointly incurred costs. Therefore, the statement of profit or loss of K Ltd. for the year ended 31st March 20X2 will include the following costs: Amortisation of lease premium ₹ 1 million. Depreciation of plant and equipment ₹ 1.5 million. Cash cost of operating the depot ₹ 4 million. K Ltd. will also include its own discretionary delivery charges of ₹ 2 million as a reduction in its operating costs.

Topics: Ind AS 111

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K Ltd. prepares its financial statements to 31st March each year. The financial statements are approved for issue on 25th May. On 1st April 20X1, K…

Suggested Answer and Working Notes:

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