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

Nila Ltd and Orion Ltd operate a pipeline jointly under a contractual arrangement. Each contributes its own assets, bears its own costs, and no separate entity is formed. This is a joint venture of the type 'jointly controlled operations'. In Nila Ltd's own separate financial statements, how should it account for this arrangement under AS 27?

Nila Ltd should recognise the assets it controls, the liabilities and expenses it incurs, and its share of the income from the venture's output. In jointly controlled operations each venturer uses its own resources, so no separate entity is consolidated and no equity method applies.

  1. ARecognise only its net investment as a single line item under the equity method
  2. BRecognise the assets it controls, the expenses and liabilities it incurs and its share of income from the ventureCorrect
  3. CRecognise its share of all venture assets and liabilities, including those of Orion Ltd, on a line-by-line basis
  4. DDisclose the arrangement only as a contingent liability

Explanation

In jointly controlled operations each venturer uses its own assets and incurs its own expenses and liabilities. AS 27 requires the venturer to recognise the assets it controls, the expenses and liabilities it incurs, and its share of income earned from the sale of goods or services. No proportionate consolidation of the other venturer's assets arises, so the option of line-by-line share of Orion's assets is wrong.

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