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

Mehta Ltd and Nair Ltd each hold 50% in a contractual arrangement to run a shared warehouse, with decisions needing unanimous consent. The arrangement is carried on through a separate entity, Sagar Logistics Pvt Ltd, in which the two venturers hold shares. Under AS 27, how is this joint venture classified?

The arrangement is a jointly controlled entity. AS 27 applies that label when a separate corporation, partnership or other entity is set up in which each venturer holds an interest and joint control exists under a contractual arrangement. Sagar Logistics Pvt Ltd fits this description, so it is not operations, assets or an associate.

  1. AJointly controlled operations
  2. BJointly controlled assets
  3. CJointly controlled entityCorrect
  4. DAssociate under AS 23

Explanation

AS 27 recognises three forms of joint venture: jointly controlled operations, jointly controlled assets and jointly controlled entities. A jointly controlled entity involves a corporation, partnership or other entity established in which each venturer has an interest, with joint control by contractual arrangement. Here Sagar Logistics is such an entity. An associate requires significant influence without joint control, so that option is wrong.

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