AS- 27 – Financial Reporting of Interests in Joint Ventures :
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity, which is subject to joint control.
In respect of its interests in jointly controlled operations, a venturer should recognize in its separate financial statements and consequently in its consolidated financial statements:
(a) the assets that it controls and the liabilities that it incurs; and
(b) the expenses that it incurs and its shares of the income that it earns from the joint venture.
This Accounting Standard requires that the venturer should recognize the following in its separate financial statements, and consequently in its consolidated financial statements:
– Its share of the jointly controlled assets giving the details of each class of assets;
– Any liabilities, which it has incurred;
– Its share of any liabilities incurred jointly with the other venturers;
– Any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and
– Any expenses which it has incurred in respect of its interest in the joint venture.
If venturer is required to prepare consolidated financial statements, then the interest in a jointly controlled entity should be reported as per proportionate consolidation. Method and procedure of consolidation are similar as prescribed by AS-21 of consolidation of accounts of holding and subsidiary, other requirements of consolidation as mentioned in AS-21 are to be followed.
When a venturer contributes or sells assets to a joint venture, recognition of any portion of a gain or loss from the transaction should reflect the substance of the transaction. While the assets are retained by the joint venture, and provided the venturer has transferred the significant risks and rewards of ownership, the venturer should recognize only that portion of the gain or loss, which is attributable to the interests of the other venturers. The venturer should recognize the full amount of any loss when the contribution or sale provides evidence of a reduction in the net realizable value of current assets or an impairment loss.
When a venturer purchases assets from a joint venture, the venturer should not recognize its share of the profits of the joint venture from the transaction until it resells the assets to an independent party. A venturer should recognize its share of the losses resulting from these transactions in the same way as profits except that losses should be recognized immediately when they represent a reduction in the net realizable value of current assets or an impairment loss.
In case of transactions between a venturer and joint venture in the form of a jointly controlled entity, the above recognition should be applied only in the preparation and presentation of consolidated financial statements and not in the preparation and presentation of separate financial statements of the venturer. Operators or managers of a joint venture should account for any fees in accordance with Accounting Standard (AS) 9, Revenue Recognition A venturer should disclose the following information in its separate financial statements as well as in consolidated financial statements.
(i) The aggregate amount of the following contingent liabilities, unless the probability of loss is remote, separately from the amount of other contingent liabilities:
(a) any contingent liabilities that the venturer has incurred in relation to its interests in joint ventures and its share in each of the contingent liabilities which have been incurred jointly with other venturers;
(b) its share of the contingent liabilities of the joint ventures themselves for which it is contingently liable; and
(c) those contingent liabilities that arise because the venturer is contingently liable for the liabilities of the other venturers of a joint venture.
(ii) The aggregate amount of the following commitments in respect of its interests in joint ventures separately from other commitments:
(a) any capital commitments of the venturer in relation to its interests in joint ventures and its share in the capital commitments that have been incurred jointly with other venturers; and
(b) its share of the capital commitments of the joint ventures themselves.
(iii) A list of all joint ventures and description of interests in significant joint ventures.
(iv) In respect of jointly controlled entities, the proportion of ownership interest, name and country of incorporation or residence.
(v) The aggregate amounts of each of the assets, liabilities, income and expenses related to its interests in the jointly controlled entitles.