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

Alpha Ltd and Beta Ltd jointly control a business carried on through a separate entity, Gamma Ltd, in which each holds 50% and which is governed by a contractual arrangement requiring unanimous consent for key decisions. Under AS 27, how is Gamma Ltd classified?

Gamma Ltd is a jointly controlled entity. AS 27 treats a joint venture that is carried on through a separate corporate entity, in which the venturers hold interests and share control under a contractual arrangement, as a jointly controlled entity, not as an associate or a jointly controlled asset.

  1. AJointly controlled entityCorrect
  2. BJointly controlled operation
  3. CJointly controlled asset
  4. DAssociate of both venturers

Explanation

AS 27 recognises three forms of joint venture: jointly controlled operations, jointly controlled assets and jointly controlled entities. A joint venture that involves establishing a corporation, partnership or other entity, in which each venturer has an interest and which is jointly controlled, is a jointly controlled entity. Gamma Ltd is such an entity, so it is not an associate, because control is shared by contract.

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