CA Intermediate · Advanced Accounting

AS 27 Financial Reporting of Interests in Joint Ventures: formula sheet

Full chapter guide

Key formulas

Joint venture: Joint venture = contractual arrangement + economic activity + joint control; All three must be present. No contract means no joint venture under AS 27.
Joint control test: Joint control = strategic financial and operating decisions need unanimous consent of the venturers; If one party can decide alone, there is no joint control.
Venturer vs investor: Venturer = has joint control; Investor = party to the JV without joint control; An investor does not use the venturer methods.
Form: operations: Jointly controlled operations = venturers use own assets and resources, no separate entity; Each venturer accounts for its own assets, costs and its share of income. This treatment applies in both the venturer's separate and consolidated financial statements.
Form: assets: Jointly controlled assets = jointly controlled (often jointly owned) assets, no separate entity; Each venturer shows its share of the assets, liabilities, income and expenses. This treatment applies in both the venturer's separate and consolidated financial statements.
Form: entities: Jointly controlled entity = separate entity set up, venturers hold interests; In the venturer's consolidated financial statements, the interest is reported by proportionate consolidation. In its separate financial statements, it is shown as an investment under AS 13.
Jointly controlled operations: what the venturer records: Own assets used + Own expenses and liabilities incurred + Own share of income from joint sale; Items are already in the venturer's books. No separate consolidation entry is needed.
Jointly controlled assets: what the venturer records: Share of jointly controlled assets (by nature) + Share of joint liabilities + Share of income from output + Share of joint expenses + Own expenses and liabilities; Share is as per the agreement. Show each item under its own head, not as one net investment.
Venturer's share of a joint item (working aid, not an AS 27 formula): Venturer's share = Total amount × Agreed ratio for that item; This is only a calculation aid. AS 27 does not give this formula. Use the ratio in the agreement for each item: the ownership ratio for assets, the expense-sharing ratio for joint costs and the income-sharing ratio for income. These ratios may differ.
Venturer's profit or loss: jointly controlled operations: Share of income from joint sale − Expenses incurred by the venturer itself; There are no joint expenses in operations. Each venturer bears only its own costs.
Venturer's profit or loss: jointly controlled assets: Share of income from output − (Own expenses + Share of joint expenses + Depreciation on share of the asset); Share of joint expenses applies only to jointly controlled assets. Depreciation is charged on the venturer's share of the asset, if the question gives it.
Share of JCE item: Venturer's share = JCE amount × venturer's % interest; Apply to every asset, liability, income and expense line, then add to the venturer's own line.
Unrealised profit, venturer sells to JCE: Eliminate = Profit on unsold stock × venturer's % interest; The venturer recognises only the gain attributable to the other venturers. It eliminates its own portion while the goods remain unsold by the JCE. This is for profits only. A loss is recognised in full if it is evidence of a reduction in the NRV of current assets or an impairment loss.
Unrealised profit, JCE sells to venturer: Eliminate = Profit on unsold stock × venturer's % interest; The venturer does not recognise its share of the JCE's profit until it resells the assets to an independent party. So it eliminates its share of the profit on goods it still holds, including its own stock bought from the JCE. A loss is recognised immediately if it is evidence of a reduction in NRV of current assets or an impairment loss.
Profit on unsold stock: Profit in unsold stock = Closing stock × profit ÷ selling price (profit on sales). If profit is on cost: Closing stock × profit ÷ (100 + profit); The first form is valid only when closing stock is valued at the intra-group transfer price. Use profit on sales or on cost as the question gives. Convert correctly.
Goodwill or capital reserve: Cost of investment − venturer's share of JCE net assets at acquisition; Positive is goodwill, negative is capital reserve. Identify it as in AS 21, using the share of equity (share capital plus reserves) at acquisition date. Goodwill is shown as an asset. Capital reserve is shown under reserves and surplus.
Exclusions: Held for near-future disposal OR severe long-term restrictions → no proportionate consolidation; Treat as an investment under AS 13 instead.
Gain on sale of asset to JV (asset still held by JV): Gain recognised = Total gain × (Share of other venturers ÷ 100); Equivalent: total gain − venturer's own share of gain. The venturer's share is held back until the asset is sold outside the JV.
Loss on sale or contribution to JV: Loss recognised = 100% of loss, if it evidences a fall in NRV of current assets or an impairment loss; AS 27 requires the full amount of such a loss to be recognised, so do not apportion it. Memory aid, not AS 27 text: the asset was yours, so the fall in value is yours.
Purchase from JV: Profit share not recognised until resale to an independent party; loss: venturer's share, recognised immediately if it represents a fall in NRV of current assets or an impairment loss; Venturer's share of unrealised profit is eliminated. Losses are dealt with like profits (venturer's share), except that a loss showing NRV fall or impairment is recognised immediately. On a sale to the JV the full loss is recognised.
Reporting rules: Venturer: CFS proportionate consolidation; separate statements AS 13 investment. Investor without joint control: CFS AS 21 if the JV is its subsidiary, AS 23 (equity method) if the JV is its associate, otherwise AS 13; separate statements AS 13; Operator fees: AS 9.

Quick revision

A joint venture is a contractual arrangement where two or more parties undertake an economic activity subject to joint control.
Joint control is the contractually agreed sharing of control over an economic activity.
Three forms: jointly controlled operations, jointly controlled assets, jointly controlled entities.
In jointly controlled operations, each venturer uses its own assets and incurs its own expenses; it records its own items and its share of sales income.
In jointly controlled assets, the venturer records its share of the joint assets, its liabilities, and its share of joint income and expenses.
A jointly controlled entity is a separate entity in which each venturer has an interest.
In consolidated statements, a venturer reports its interest in a jointly controlled entity by proportionate consolidation.
In separate statements of the venturer, the interest in a jointly controlled entity is accounted for as an investment under AS 13.
Proportionate consolidation means adding the venturer's share of each asset, liability, income and expense line by line.
On sale or contribution of an asset by the venturer to the JV, recognise only the share of gain attributable to the other venturers. In consolidated statements, eliminate the venturer's own share of the unrealised profit until the asset is sold outside the JV.
Recognise a loss in full only if it evidences a reduction in the net realisable value of current assets or an impairment loss.
An investor in a JV who does not have joint control reports its interest in its consolidated financial statements under AS 21 (if it has control), AS 23 (if it has significant influence), or AS 13 otherwise. In its separate financial statements, AS 13 applies.

Common mistakes

Calling any business tie-up a joint venture. Fix: Always test for a contract and unanimous consent on strategic decisions before concluding.
Treating a party with only significant influence as a venturer. Fix: A venturer needs joint control. A party to the joint venture without joint control is an investor. An investor in a JV without joint control reports its interest in accordance with AS 13, Accounting for Investments, or in accordance with AS 23 if it has significant influence in the JV and presents consolidated financial statements.
Treating every joint venture as needing proportionate consolidation. Fix: Remember that operations and assets have no separate entity. The venturer simply records its items in its own books.
Showing the investment in jointly controlled assets as one net figure. Fix: Show the share of each asset and liability by nature, for example plant, building or creditors.
Showing minority interest for a JCE. Fix: Under proportionate consolidation, bring in only your share. There is no minority interest.
Eliminating 100% of the unrealised profit. Fix: Under AS 27 eliminate only the venturer's percentage share of the unrealised profit. Do not defer a loss if it is evidence of a reduction in the NRV of current assets or an impairment loss. Recognise that loss in full.
Recognising the full gain on a sale of an asset to the JV. Fix: Recognise only the portion attributable to the other venturers. Defer your own share.
Apportioning a loss that shows impairment or lower NRV on a sale or contribution to the JV. Fix: AS 27 requires the full amount of such a loss to be recognised. Only on a purchase from the JV do you deal with the venturer's share of the loss.

Exam tips

Start every answer with the definition of joint control; it is the usual test.
Write the reason with the classification. One line on why the form fits earns marks.
For MCQs, look for the words 'separate entity' to spot jointly controlled entities quickly.
Link to the next topics. Questions often ask for the treatment after the identification.
Do not rely on percentage holdings alone. Read the decision-making terms.
Always name the form of joint venture first. Many marks depend on correct classification.
In MCQs, look for the words 'separate entity' and 'jointly held asset'. They tell you the form at once.
State that the venturer includes these items in its own books, so no separate consolidation procedures are needed for these two forms.