CERTYNEX IFRS ACADEMY

A colleague writes: "Orca, a joint operator, sells an item of equipment to the joint operation at a gain of 150,000; it recognises the whole gain, since the sale is made with an entity separate from itself." What is the error in this reasoning?

It forgets that by selling to the joint operation, the operator is in effect transacting with the other parties: the gain is recognised only to the extent of their interests.

It forgets that the gain on a sale to the joint operation is deferred in full until the joint operation is wound up, whatever the operator's holding percentage.

It applies the equity method to a sale transaction, whereas the joint operator must include the gain in its share of profit.

It overlooks that the gain is computed on the equipment's carrying amount in the buyer's books, not on the sale price agreed between the parties.