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

Anil Ltd and Bharat Ltd contribute equally to a contractual arrangement to run a toll-road project. Decisions on relevant activities require unanimous consent of both parties, and each takes half of the output revenue. Under AS 27, which feature MOST clearly indicates that this is a joint venture?

The defining feature is a contractual arrangement under which the parties undertake an economic activity that is subject to joint control. Unanimous consent over relevant decisions evidences joint control. A majority holding by one party would suggest control rather than a joint venture.

  1. AAnil Ltd holds a majority of voting power in the project
  2. BThe venturers undertake an economic activity subject to joint control under a contractual arrangementCorrect
  3. CThe project is run by a third party hired for a fee
  4. DEach party prepares independent standalone accounts for the project

Explanation

AS 27 defines a joint venture as a contractual arrangement under which two or more parties undertake an economic activity that is subject to joint control. Unanimous consent on decisions shows joint control. Majority voting power by one party would indicate control, not joint control, so option A is wrong.

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