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This Accounting Standard deals with accounting of interests in joint ventures and the reporting of joint venture incomes and expenses, assets and liabilities in the financial statements of ventures and investors.
This Accounting standard is applicable only if the venturer prepares the consolidated financial statements.
A Joint Venture is a contractual arrangement in which two or more parties undertake an economic activity and such activity is subject to joint control.
Forms of Joint Ventures –
- Jointly controlled entities,
- Jointly controlled operations, and
- Jointly controlled assets.
Jointly controlled operations – Accounting Treatment
- Recognition of interests in jointly controlled operations is done by a venturer in its separate as well as its consolidated financial statements as below:
- The assets so controlled and liabilities so incurred
- The expenses that are incurred and incomes so earned from such joint venture.
- Recognition in jointly controlled assets is done by venturer in its separate as well as its consolidated financial statements as below:
- According to the nature of assets, its share on such assets is classified.
- Any liabilities which it has incurred so far.
- Share of it in liabilities so incurred jointly with the other venturer.
- Interest related expenditure incurred in the joint venture.
Discontinuance of Joint Control
A venturer should not use or continue with proportionate consolidation from the date that:
- When it ceases a joint control in a jointly controlled entity but still retains its interest in the entity, either in whole or in part, or
- Where under severe long-term restrictions the jointly controlled entity operates significantly in impairing its ability to transfer funds to venturer.
Accounting Treatment after Discontinuance
Interest in a jointly controlled consolidation, from the discontinuing date, should be accounted for:
- In Accordance with Accounting Standard 21, Consolidated Financial Statements, if the unilateral control is acquired by venturer over the entity and also becomes parent; and
- In all other cases, in accordance with Accounting Standard 23, Accounting for Investments in Associates in Consolidated Financial Statements or as an investment in accordance with Accounting Standard 13, Accounting for Investments, as appropriate.
Cost of investment should be taken as under:
- As at the date of Discontinuance of proportionate consolidation, the share of venturer in the net assets of the jointly controlled entity should be ascertained, and
- As at the date of discontinuance of proportionate consolidation, the amount of net assets so ascertained should be adjusted with the carrying amount of the relevant goodwill or capital reserve.
A venturer needs to disclose the following information:
Unless the probability of loss is remote, the aggregate amount of contingent liabilities should be disclosed separately from the amount of other contingent liabilities:
- If venturer has incurred any contingent liabilities in relation to its interest in joint ventures and the share in contingent liabilities so incurred.
- Its share of the contingent liabilities for which it is contingently liable of the joint ventures and those contingent liabilities which arise due to contingent liability of the venturer to the other venturer of a joint venture.