|
Accounting
Standard 27- Financial Reporting of Interests in Joint
Venture
| Issuing
Authority: |
The
Institute of Chartered Accountants of India. |
| Status: |
Mandatory |
| Effective
Date: |
In
respect of accounting periods commencing on or after
1.4.2002 |
Important
Definitions
Joint
Venture: A contractual arrangement whereby two or
more parties undertake an economic
activity, which is subject to joint control.
A Venturer:
A party to a joint venture and has joint control over
that joint venture.
Proportionate
Consolidation: A method of accounting and reporting
whereby a venturer's share of each of the assets,liabilities,income
and expenses of a jointly controlled entity is reported
as separate line items in the venturer's financial statements.
Forms
of Joint Venture
- A.
Jointly Controlled Operations
In
respect of its interests in jointly controlled operations,a
venturer should recognise in its separate financial
statements and consequently in its consolidated financial
statements:
-
the assets that it controls and the liabilities
that it incurs;and
- the
expenses that it incurs and its share of the income
that it earns from the joint venture.
-
Jointly Controlled Assets
In respect of its interest in jointly controlled assets,a
venturer should recognise,in its separate finfancial
statements,and consequently in its consolidated financial
statements:
-
its share of the jointly controlled assets,classified
according to the nature of the assets;
-
any liabilities which it has incurred;
-
its share of any liabilities incurred jointly
with the other venturers in relation to the joint
venture;
-
any income from the sale or use of its share of
the output of the joint venture,together with
its share of any expenses incurred by the joint
venture;and
-
any expenses which it has incurred in respect
of its interest in the joint venture
- Jointly
Controlled Entities
-
Separate Financial Statements of A Venturer:
Interest
in a jointly controlled entity should be accounted
for as an investment in accordance with AS 13
- Accounting for Investments
-
Consolidated Financial Statements of a Venturer:
A
venturer should report its interest in a jointly
controlled entity using proprtionate consolidation
except
-
an interest in a jointly controlled entity
which is acquired and held exclusively
with a view to its subsequent disposal in
the near future;and
-
an interest in a jointly controlled entity
which operates under severe long-term
restrictions that significantly impair its
ability to transfer funds to the venturer.
Interest in such a jointly controlled entity
should be accounted for as an
investment in accordance with AS 13 - Accounting
for Investments.
A venturer
should discontinue the use of proportionate consolidation
from the date that:
- it
ceases to have joint control over a jointly controlled
entity but retains,either in whole or in part,its
interest in the entity;or
- the
use of the proportionate consolidation is no longer
appropriate because the jointly controlled entity
operates under severe long-term restrictions that
significantly impair its ability to transfer funds
to the venturer.
From such
discontinuance date,interest in a jointly controlled
entity should be accounted
for:
- in
accordance with AS 21 - Consolidated Financial Statements,if
the venturer acquires unilateral control over the
entity and becomes parent within the meaning of that
standard;and
- in
all other cases,as an investment in accordance with
AS 13 - Accounting for Investmants, or in accordance
with AS 23 - Accounting for Investments in Associates
in Consolidated Financial Statements , as appropriate.For
this purpose,cost of the investment should be determined
as under:
-
the venturer's share in the net assets of the
jointly controlled entity as at the date of
discontinuance of proportionate consolidation
should be ascertained,and
-
the amount of net assets so ascertained should
be adjusted with the carrying
amount of the relevant goodwill/capital reserve
as at the date of discontinuance of
proprtionate consolidation.
Transactions
between a Venturer and Joint Venture
Sale
of assets to a joint venture
- Recognition
of gain or loss from the transaction should reflect
the substance of the
transaction.
- While
the assets are retained by the joint venture,and provided
the venturer has
transferred the significant risks and rewards of ownership,the
venturer should recognise only that portion of the
gain or loss which is attributable to the interests
of the other venturers.
- The
venturer should recognise the full amount of any loss
when the contribution or
sale provides evidence of a reduction in the net realisable
value of current assets or an impairment loss.
Purchase
of Assets from a Joint Venture
- The
venturer should not recognise its share of the profits
of the joint venture from the
transaction until it resells the assets to an independent
party.
- A venturer
should recognise its share of the losses in the same
way as profits except
that losses should be recognised immediately when
they represent a reduction in the
net realisable value of current assets or an impairment
loss.
In case
of transactions between a venturer and a joint venture
in the form of a jointly controlled entity, the above
requirements should be applied only in the preparation
and presentation of consolidated financial statements
and not in the preparation and presentation of separate
financial statements of the venturer.
Reporting
Interests in Joint Ventures in the Financial Statements
of an Investor
- Investor's
Consolidated Financial Statements
Such interest in a joint venture not having joint
control,should be reported in accordance with AS 13
- Accounting for Investments,AS 21 - Consolidated
Financial Statements or AS 23 - Accounting for Investments
in Associates in Consolidated Financial Statements,as
appropriate.
- Investor's
Separate Financial Statements
This should be accounted for in accordance with AS
13 - Accounting for Investments.
Operators
of Joint Ventures
Operators or managers of a joint venture should account
for any fees in accordance with AS 9 - Revenue Recognition.
Disclosure
A
venturer should disclose the following in its separate
as well as in consolidated financial statements:
- aggregate
amount of following contingent liabilities,unless
the probability of loss is
remote,separately from the amount of other contingent
liabilities:
-
contingent liabilities incurred in relation to
his interests in the joint venture and his share
in each of the contingent liabilities incurred
jointly with other venturers;
-
his share of contingent liabilities of the joint
ventures themselves for which he is
contingently liable;and
-
contingent liabilities that arise because the
venturer is contingently liable for the
liabilities of the other venturers of a joint
venture.
- aggregate
amount of following commitments in respect of its
interests in joint
ventures separately from other commitments:
-
capital commitments incurred in relation to his
interests in the joint venture and
its share in capital commitments incurred jointly
with other venturers;and
-
its share of capital commitments of the joint
ventures themselves.
- a list
of all joint ventures and description of interests
in significant joint ventures and proportion of ownership
interest,name and country of incorporation or residence
in respect of jointly controlled entities.
- the
aggregate amounts of each of the assets,liabilities,income
and expenses related
to its interests in the jointly controlled entities
- in the separate financial statements.
|
