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

Anand Ltd and Bhaskar Ltd jointly control an oil pipeline asset under a contract. Each owns 50% of the pipeline, bears 50% of expenses and takes 50% of the output, with no separate entity. The pipeline cost Rs 80,00,000 in total, and in the year total operating expenses were Rs 12,00,000. In Anand's separate financial statements, what is recorded for this arrangement under AS 27?

Anand records its 50% share of the pipeline, Rs 40,00,000, as a fixed asset and its Rs 6,00,000 share of expenses in its own books. For jointly controlled assets AS 27 requires the venturer's share of assets and expenses to be recognised directly, not as an investment.

  1. AInvestment of Rs 40,00,000 under non-current investments
  2. BShare of pipeline Rs 40,00,000 as fixed asset and expenses Rs 6,00,000 as its own expenseCorrect
  3. CPipeline Rs 80,00,000 as fixed asset and expenses Rs 12,00,000
  4. DOnly Rs 6,00,000 expenses; the pipeline is not recognised

Explanation

This is a jointly controlled asset. The venturer recognises its share of the jointly controlled assets, classified by nature, and its share of expenses incurred, in its own financial statements. Share of asset = 50% x 80,00,000 = 40,00,000; share of expenses = 50% x 12,00,000 = 6,00,000. Showing it as an investment or recording 100% is wrong.

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