Advanced Accounting · AS 27 Financial Reporting of Interests in Joint Ventures

AS 27: Jointly Controlled Entities and Proportionate Consolidation

Updated 4 October 2026 · Fact-checked

A jointly controlled entity (JCE) is a joint venture run through a separate entity in which venturers share control. In consolidated financial statements, the venturer adds its share of the JCE's assets, liabilities, income and expenses line by line, then eliminates its share of unrealised intra-group profit.

Understand Jointly Controlled Entities and Proportionate Consolidation

A joint venture under AS 27 is a contractual arrangement in which two or more parties carry on an economic activity under joint control. Joint control means no single party can decide alone. Key decisions need the agreement of the venturers.

A jointly controlled entity is a joint venture that sets up a corporate body, partnership or other entity. Each venturer owns an interest in it. The entity keeps its own books and may hold assets and incur liabilities in its own name.

In the consolidated financial statements of the venturer, AS 27 requires proportionate consolidation. You do not show one line called investment. Instead you take the venturer's percentage share of each asset, liability, income and expense of the JCE. You add it to the matching line of the venturer. There is no minority interest for the JCE, because you bring in only your share.

There are two exceptions. Do not use proportionate consolidation if the interest is acquired and held exclusively with a view to disposal in the near future. Also do not use it if the JCE operates under severe long-term restrictions that impair its ability to transfer funds to the venturer. In these cases, account for the interest as an investment under AS 13. Where proportionate consolidation is used, the procedures are similar to those in AS 21, including identifying goodwill or capital reserve on acquisition. Goodwill is shown as an asset. Capital reserve is shown under reserves and surplus, as in AS 21.

Intra-group transactions between the venturer and the JCE create unrealised profit. When the venturer sells to the JCE, the venturer recognises only the portion of the gain attributable to the other venturers. It eliminates the portion attributable to itself for as long as the goods remain unsold by the JCE. So the proportion of goods still unsold is the key figure.

When the venturer buys assets from the JCE, the venturer does not recognise its share of the JCE's profit on that transaction until it resells the assets to an independent party. So it eliminates its share of the profit in the stock it still holds. The same elimination applies to the venturer's own stock bought from the JCE.

To find the profit in unsold stock, use closing stock × profit ÷ selling price. This works only when the closing stock is valued at the intra-group transfer price. If the margin is given on cost, use profit ÷ (100 + profit) instead.

Losses are treated differently from profits. If the venturer sells assets to the JCE at a loss, the venturer recognises the full loss when the loss is evidence of a reduction in the net realisable value (NRV) of current assets or an impairment loss. The same applies to a loss on assets the venturer buys from the JCE.

Key rules to remember

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.

How to solve Jointly Controlled Entities and Proportionate Consolidation questions

Use this order for any question on a jointly controlled entity in consolidated statements.

1Check the facts: joint control by contract, separate entity, and your percentage. Check whether an exclusion applies (held for disposal or severe restrictions).
2Identify goodwill or capital reserve as in AS 21: investment cost less your share of the JCE's share capital and reserves at acquisition. Split post-acquisition reserves into the venturer's share.
3Find your share of each JCE asset and liability line (JCE amount × your %).
4Add these shares to the venturer's lines to build the consolidated balance sheet. Do not show minority interest for the JCE.
5Find unrealised profit on intra-group stock or assets. Compute your share only. If the intra-group transaction gave a loss, check whether it shows a fall in NRV or an impairment. If so, recognise it in full.
6Reduce the stock figure and the consolidated profit or reserves by that amount. Show goodwill as an asset, or capital reserve under reserves and surplus, as identified under AS 21.
7Tally the balance sheet and show workings clearly as notes.

Quickest way: Share-and-adjust method

When to use it: Use this for balance sheet problems where time is short and the JCE figures are given in full.

Write the venturer's % beside the question and compute the JCE share column once for all lines.
Add across: venturer column plus JCE share column gives the consolidated column.
Find the unrealised profit in one line: closing stock × margin × your %.
Deduct it from stock and from consolidated reserves in the same step.
Put the investment account against your share of equity. The difference is goodwill or capital reserve.
For MCQs, check first for exclusions and for who sold to whom. Wrong options usually eliminate the full profit or add minority interest. If the question gives a loss on an intra-group sale, check for evidence of NRV reduction before eliminating anything.

Common mistakes in Jointly Controlled Entities and Proportionate Consolidation

Showing minority interest for a JCE.
Students mix up AS 21 (full line-by-line) with AS 27 (proportionate).
Fix: Under proportionate consolidation, bring in only your share. There is no minority interest.
Eliminating 100% of the unrealised profit.
The rule for subsidiaries under AS 21 is remembered, where full elimination applies.
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.
Leaving the investment in the consolidated balance sheet.
Students forget the investment is replaced by the share of assets and liabilities.
Fix: Cancel the investment against your share of equity. Identify the difference as goodwill or capital reserve, as in AS 21.
Applying proportionate consolidation despite an exclusion.
Facts about disposal intent or restrictions are missed in the question text.
Fix: Read for the words held for disposal or severe restrictions. Then treat it as an AS 13 investment.
Wrong profit on unsold stock when margin is on cost.
Profit on cost is treated as profit on sales.
Fix: If profit is 25% on cost, profit in stock = stock × 25 ÷ 125.

Worked examples

Example 1

A Ltd holds 40% in a jointly controlled entity J Ltd, acquired for ₹6,00,000 when J's share capital was ₹10,00,000 and reserves were ₹2,00,000. At the balance sheet date J's equity and liabilities are: share capital ₹10,00,000, reserves ₹5,00,000 and creditors ₹5,00,000. J's assets: fixed assets ₹12,00,000 and stock ₹8,00,000. Compute A's share of J's items and the goodwill or capital reserve.

Show the solution

Check J's balance sheet: share capital ₹10,00,000 + reserves ₹5,00,000 + creditors ₹5,00,000 = ₹20,00,000, which equals assets of ₹12,00,000 + ₹8,00,000 = ₹20,00,000.
A's share of fixed assets: 12,00,000 × 40% = ₹4,80,000.
A's share of stock: 8,00,000 × 40% = ₹3,20,000.
A's share of creditors: 5,00,000 × 40% = ₹2,00,000.
A's share of share capital at acquisition: 10,00,000 × 40% = ₹4,00,000.
A's share of reserves at acquisition: 2,00,000 × 40% = ₹80,000. Equity share at acquisition = 4,00,000 + 80,000 = ₹4,80,000.
Goodwill = cost 6,00,000 − 4,80,000 = ₹1,20,000.
In the consolidated balance sheet, the investment of ₹6,00,000 is cancelled against A's share of equity at acquisition of ₹4,80,000 and goodwill of ₹1,20,000 (4,80,000 + 1,20,000 = 6,00,000). The goodwill of ₹1,20,000 is shown as an asset.
Post-acquisition reserves: (5,00,000 − 2,00,000) × 40% = ₹1,20,000, added to consolidated reserves.

Answer: Share of fixed assets ₹4,80,000, stock ₹3,20,000, creditors ₹2,00,000. Goodwill on consolidation is ₹1,20,000, shown as an asset in the consolidated balance sheet. The investment of ₹6,00,000 is cancelled. Post-acquisition reserves of ₹1,20,000 go to consolidated reserves.

Example 2

X Ltd owns 50% of a jointly controlled entity Y Ltd. During the year X sold goods costing ₹4,00,000 to Y for ₹5,00,000. Y still holds 40% of these goods at year end. Compute the unrealised profit to be eliminated in X's consolidated statements and state the effect.

Show the solution

Total profit on the sale = 5,00,000 − 4,00,000 = ₹1,00,000.
Profit in unsold goods = 1,00,000 × 40% = ₹40,000.
X eliminates only its own portion while the goods remain unsold by Y: 40,000 × 50% = ₹20,000.
Reduce consolidated stock by ₹20,000 and reduce consolidated profit or reserves by ₹20,000.
The remaining ₹20,000 is the gain attributable to the other venturer, so X recognises it.
This is a profit, so the loss rule does not apply here.

Answer: Unrealised profit to be eliminated is ₹20,000. Consolidated stock and consolidated profit both fall by ₹20,000.

Exam tips

Read the first line for the word joint control and the exclusions before doing any arithmetic.
Always say who sold to whom. For profits, the elimination uses the venturer's percentage in both directions. A loss that shows a fall in NRV or an impairment is recognised in full.
Show your share column as a workings note. Step marks are given even if the final balance sheet has an error.
State the goodwill or capital reserve with the equity share at acquisition, not at the balance sheet date.
In theory questions, name both the method (proportionate consolidation) and the two exclusions.

Practice questions from AS 27 Financial Reporting of Interests in Joint Ventures

Jointly Controlled Entities and Proportionate Consolidation: frequently asked questions

What is proportionate consolidation under AS 27?

It is the method where the venturer adds its percentage share of each asset, liability, income and expense of the jointly controlled entity to its own lines. It applies in consolidated financial statements only. There is no minority interest.

When is proportionate consolidation not used?

It is not used when the interest is acquired and held exclusively for disposal in the near future. It is also not used when the entity works under severe long-term restrictions on transferring funds to the venturer. The interest is then treated as an investment under AS 13.

How much unrealised profit do I eliminate?

You eliminate only the venturer's percentage share of the profit that is unrealised. For example, with a 40% interest you remove 40% of the profit contained in the unsold stock. Losses are different. If a loss on an intra-group sale is evidence of a reduction in NRV of current assets or an impairment loss, you recognise it in full.

Is the JCE shown as an investment in consolidated statements?

No. The investment is replaced by your share of the JCE's assets and liabilities. The difference between cost and your share of net assets at acquisition is identified as goodwill or capital reserve, as in AS 21.