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Quick Reference on Accounting Standard (AS) 27

Download Quick Reference on Accounting Standard (AS) 27 Financial Reporting of Interests in Joint Ventures

The objective of AS 27 is to set out principles and procedures for accounting for interests in joint ventures and reporting of joint venture assets, liabilities, income and expenses in the financial statements of venturers and investors.

Joint venture is a contractual arrangement whereby two or more parties undertake an economic activity, which is subject to joint control.

Joint control is the contractually agreed sharing of control over an economic activity.

Forms of Joint Ventures and accounting in the books of venturer

Jointly Controlled Operations

Separate & Consolidated Financial Statements

Venturer should recognise, in its separate and consolidated financial statements,

  • assets that it controls
  • liabilities that it incurs
  • expenses that it incurs
  • its share of the income that it earns from the joint venture

Jointly Controlled Assets

Separate & Consolidated Financial Statements

Venturer should recognise, in its separate and consolidated financial statements,

  • its share of the jointly controlled assets, classified according to the nature of the assets
  • any liabilities which it has incurred
  • its share of any liabilities incurred jointly with the other venturers in relation to the joint venture
  • 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
  • any expenses which it has incurred in respect of its interest in the joint venture

Jointly Controlled Entities

Separate Financial Statements

Interest in a jointly controlled entity should be accounted for as an investment in accordance with AS 13.

Consolidated Financial Statements

A venturer should report its interest in a jointly controlled entity using proportionate consolidation except an interest in a jointly controlled entity which:

  • is acquired and held exclusively with a view to its subsequent disposal in the near future
  • operates under severe long-term restrictions that significantly impair its ability to transfer funds to the venturer.

Such interests should be accounted for as an investment in accordance with AS 13.

Venturer is a party to a joint venture and has joint control over that joint venture.

Proportionate consolidation is a method of accounting and reporting whereby a venturer’s share of each of the:

  • assets
  • liabilities
  • income
  • expenses

of a jointly controlled entity is reported as separate line items in the venturer’s consolidated financial statements.

Jointly controlled entities: Further considerations

Computation of goodwill/Capital Reserve

Goodwill- Costs of venturer’s interest in the jointly controlled entity > Venturer’s share of net assets of the jointly controlled entity on date of acquisition of interest

Capital Reserve – Costs of venturer’s interest in the jointly controlled entity < Venturer’s share of net assets of the jointly controlled entity on date of acquisition of interest.

Reporting Date

The financial statements of the jointly controlled entity used in applying proportionate consolidation are usually drawn up to the same date as the financial statements of the venturer.

When it is impracticable to do this, financial statements drawn up to different reporting dates may be used provided the difference in reporting dates is not more than six months. In such a case, adjustments are made for the effects of significant transactions or other events that occur between the date of financial statements of the jointly controlled entity and the date of the venturer’s financial statements.

Uniform Accounting Policies

The venturer usually prepares consolidated financial statements using uniform accounting policies for the like transactions and events in similar circumstances.

In case a jointly controlled entity uses accounting policies other than those adopted for the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to the financial statements of the jointly controlled entity when they are used by the venturer in applying proportionate consolidation.

If it is not practicable to do so, that fact is disclosed together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied.

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