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Thread: 27 Accounting Standard 27 - Financial Reporting of Interests in Joint Ventures -

  1. #11
    Accounting Standards
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    Default Consolidated Financial Statements of a Venturer of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    Consolidated Financial Statements of a Venturer

    29. In its consolidated financial statements, a venturer should report its interest in a jointly controlled entity using proportionate consolidation except

    (a) an interest in a jointly controlled entity which is acquired and held exclusively with a view to its subsequent disposal in the near future5; and

    (b) 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 Accounting Standard (AS) 13, Accounting for Investments.


    30. When reporting an interest in a jointly controlled entity in consolidated financial statements, it is essential that a venturer reflects the substance and economic reality of the arrangement, rather than the joint venture's particular structure or form. In a jointly controlled entity, a venturer has control over its share of future economic benefits through its share of the assets and liabilities of the venture. This substance and economic reality is reflected in the consolidated financial statements of the venturer when the venturer reports its interests in the assets, liabilities, income and expenses of the jointly controlled entity by using proportionate consolidation.


    31. The application of proportionate consolidation means that the consolidated balance sheet of the venturer includes its share of the assets that it controls jointly and its share of the liabilities for which it is jointly responsible. The consolidated statement of profit and loss of the venturer
    includes its share of the income and expenses of the jointly controlled entity. Many of the procedures appropriate for the application of proportionate consolidation are similar to the procedures for the consolidation of investments in subsidiaries, which are set out in Accounting Standard (AS) 21, Consolidated Financial Statements.

    32. For the purpose of applying proportionate consolidation, the venturer uses the consolidated financial statements of the jointly controlled entity.

    33. Under proportionate consolidation, the venturer includes separate line items for its share of the assets, liabilities, income and expenses of the jointly controlled entity in its consolidated financial statements. For example, it shows its share of the inventory of the jointly controlled entity separately as part of the inventory of the consolidated group; it shows its share of the fixed
    assets of the jointly controlled entity separately as part of the same items of the consolidated group.


    34. The financial statements of the jointly controlled entityused in applying proportionate consolidation are usually drawn up to the same date as the financial statements of the venturer. When the reporting dates are different, the jointly controlled entity often prepares, for applying proportionate consolidation, statements as at the same date as that of the venturer. When
    it is impracticable to do this, financial statements drawn up to different reporting dates may be used provided the difference in reporting dates is not more than six months. In such a case, adjustments are made for the effects of significant transactions or other events that occur between the date of
    financial statements of the jointly controlled entity and the date of theventurer's financial statements. The consistency principle requires that the length of the reporting periods, and any difference in the reporting dates, are consistent from period to period.

    35. The venturer usually prepares consolidated financial statements using uniform accounting policies for the like transactions and events in similar circumstances. In case a jointly controlled entity uses accounting policies other than those adopted for the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to the financial statements of the jointly controlled entity when they are used by the venturer in applying proportionate consolidation. If it is not practicable to do so, that fact is disclosed together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied.

    36. While giving effect to proportionate consolidation, it is inappropriate to offset any assets or liabilities by the deduction of other liabilities or assets or any income or expenses by the deduction of other expenses or income, unless a legal right of set-off exists and the offsetting represents the
    expectation as to the realisation of the asset or the settlement of the liability.

    37. Any excess of the cost to the venturer of its interest in a jointly controlled entity over its share of net assets of the jointly controlled entity, at the date on which interest in the jointly controlled entity is acquired, is recognised as goodwill, and separatelydisclosed in the consolidated financial
    statements. When the cost to the venturer of its interest in a jointlycontrolled entity is less than its share of the net assets of the jointly controlled entity, at the date onwhich interest in the jointly controlled entity is acquired, the difference is treated as a capital reserve in the consolidated financial statements. Where the carrying amount of the venturer's interest in a jointly controlled entity is different fromits cost, the carrying amount is considered for the purpose of above computations.


    38. The losses pertaining to one or more investors in a jointly controlled entitymay exceed their interests in the equity7 of the jointly controlled entity. Such excess, and any further losses applicable to such investors, are recognised by the venturers in the proportion of their shares in the venture, except to the extent that the investors have a binding obligation to, and are able to, make good the losses. If the jointly controlled entity subsequently reports profits, all such profits are allocated to venturers until the investors' share of losses previously absorbed by the venturers has been recovered.

    39. A venturer should discontinue the use of proportionate consolidation from the date that:

    (a) 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

    (b) 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.

    40. From the date of discontinuing the use of the proportionate consolidation, interest in a jointly controlled entity should be accounted for:

    (a) in accordance with Accounting Standard (AS) 21, Consolidated Financial Statements, if the venturer acquires unilateral control over the entity and becomes parent within the meaning of that Standard; and

    (b) in all other cases, as an investment in accordance with Accounting Standard (AS) 13, Accounting for Investments, or in accordance with Accounting Standard (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:

    (i) 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

    (ii) the amount of net assets so ascertained should be adjusted with the carrying amount of the relevant goodwill/capital reserve (see paragraph 37) as at the date of discontinuance of proportionate consolidation.

  2. #12
    Accounting Standards
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    Default Transactions between aVenturerand JointVenture of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    Transactions between aVenturerand JointVenture of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures


    41. When a venturer contributes or sells assets to a joint venture, recognition of any portion of a 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.

    42. When a venturer purchases 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 resulting from these transactions 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.


    43. To assess whether a transaction between a venturer and a joint venture provides evidence of impairment of an asset, the venturer determines the recoverable amount of the asset as per Accounting Standard on Impairment of Assets1 . In determining value in use, future cash flows from the asset are estimated based on continuing use of the asset and its ultimate disposal by the joint venture.

    44. In case of transactions between a venturer and a joint venture in the form of a jointly controlled entity, the requirements of paragraphs 41 and 42 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.

    45. In the separate financial statements of the venturer, the full amount of gain or loss on the transactions taking place between the venturer and the jointly controlled entity is recognised. However, while preparing the consolidated financial statements, the venturer's share of the unrealised gain or loss is eliminated. Unrealised losses are not eliminated, if and to the extent they represent a reduction in the net realisable value of current assets or an impairment loss. The venturer, in effect, recognises, in consolidated financial statements, only that portion of gain or loss which is attributable to the interests of other venturers.2











    1 Accounting Standard (AS) 28, ‘Impairment of Assets’, specifies the requirements relating to impairment of assets.


    2 An Announcement titled ‘Elimination of unrealised profits and losses under AS 21, AS 23 and AS 27’ has been issued in July 2004. As per the announcement, while applying ‘proportionate consolidation method’, elimination of unrealised profits and losses in respect of transactions entered into during
    accounting periods commencing on or before 31-3-2002, is encouraged, but not required on practical grounds.

  3. #13
    Accounting Standards
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    Default Reporting Interests in Joint Ventures in the Financial Statements of an Investor of Accounting Standard (AS) 27 - Financial Reporting

    Reporting Interests in Joint Ventures in the Financial Statements of an Investor Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures


    46. An investor in a joint venture, which does not have joint control, should report its interest in a joint venture in its consolidated financial statements in accordance with Accounting Standard (AS) 13, Accounting for Investments, Accounting Standard (AS) 21, Consolidated Financial Statements or Accounting Standard (AS) 23, Accounting for Investments in Associates in Consolidated Financial
    Statements, as appropriate.

    47. In the separate financial statements of an investor, the interests in joint ventures should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments.

  4. #14
    Accounting Standards
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    Default Operators of Joint Ventures of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    Operators of Joint Ventures of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures


    48. Operators or managers of a joint venture should account for any fees in accordance with Accounting Standard (AS) 9, Revenue Recognition.

    49. One or more venturers may act as the operator or manager of a joint venture. Operators are usually paid a management fee for such duties. The fees are accounted for by the joint venture as an expense.

  5. #15
    Accounting Standards
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    Default Disclosure of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    Disclosure of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    50. A venturer should disclose the information required by paragraphs 51, 52 and 53 in its separate financial statements as well as in consolidated financial statements.

    51. A venturer should disclose the aggregate amount of the following contingent liabilities, unless the probability of loss is remote, separately from the amount of other contingent liabilities:

    (a) any contingent liabilities that the venturer has incurred in relation to its interests in joint ventures and its share in each of the contingent liabilities which have been incurred jointly
    with other venturers;

    (b) its share of the contingent liabilities of the joint ventures themselves for which it is contingently liable; and

    (c) those contingent liabilities that arise because the venturer is contingently liable for the liabilities of the other venturers of a joint venture.


    52. A venturer should disclose the aggregate amount of the following commitments in respect of its interests in joint ventures separately from other commitments:

    (a) any capital commitments of the venturer in relation to its interests in joint ventures and its share in the capital commitments that have been incurred jointly with other venturers; and

    (b) its share of the capital commitments of the joint ventures themselves.


    53. A venturer should disclose a list of all joint ventures and description of interests in significant joint ventures. In respect of jointly controlled entities, the venturer should also disclose the proportion of ownership interest, name and country of incorporation or residence.

    54. A venturer should disclose, in its separate financial statements, the aggregate amounts of each of the assets, liabilities, income and expenses related to its interests in the jointly controlled entities.

  6. #16
    Accounting Standards
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    Default Financial Reporting of Interests in Joint Ventures of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    Limited Revision to Accounting Standard (AS) 27 (issued 2002)


    Financial Reporting of Interests in Joint Ventures of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    The following is the text of the limited revision to AS 27, Financial Reporting of Interests in Joint
    Ventures, issued by the Institute of Chartered Accountants of India.

    In view of Accounting Standard (AS) 30, Financial Instruments: Recognition and Measurement,

    AS 27 (issued 2002) is modified as under (modifications are shown as doubleunderline/ strike-through):


    1. The ‘Scope’ paragraphs of the Standard are amended as follows:

    Scope

    1. This Statement should be applied in accounting for interests in joint ventures and the reporting of joint venture assets, liabilities, income and expenses in the financial statements of venturers and investors, regardless of the structures or forms under which the joint venture activities take place.
    However, it does not apply to venturer’s interests in jointly controlled entities held by:

    (a) venture capital organisations, or

    (b) mutual funds, unit trusts and similar entities including investment-linked insurance funds
    that upon initial recognition are designated as at fair value through profit or loss and accounted for in accordance with AS 30, Financial Instruments: Recognition and Measurement. Such investments should be measured at fair value in accordance with AS 30, with changes in fair value recognised in the statement of profit and loss in the period of the change.

  7. #17
    Accounting Standards
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    Default Financial Reporting of Interests in Joint Ventures of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    Limited Revision to Accounting Standard (AS) 27 (issued 2002)


    Financial Reporting of Interests in Joint Ventures of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    The following is the text of the limited revision to AS 27, Financial Reporting of Interests in Joint
    Ventures, issued by the Institute of Chartered Accountants of India.

    In view of Accounting Standard (AS) 30, Financial Instruments: Recognition and Measurement, AS 27 (issued 2002) is modified as under (modifications are shown as doubleunderline/ strike-through):

    1. The ‘Scope’ paragraphs of the Standard are amended as follows:

    Scope

    1. This Statement should be applied in accounting for interests in joint ventures and the reporting of joint venture assets, liabilities, income and expenses in the financial statements of venturers and investors, regardless of the structures or forms under which the joint venture activities take place. However, it does not apply to venturer’s interests in jointly controlled entities held by:

    (a) venture capital organisations, or

    (b) mutual funds, unit trusts and similar entities including investment-linked insurance funds
    that upon initial recognition are designated as at fair value through profit or loss and accounted for in accordance with AS 30, Financial Instruments: Recognition and Measurement. Such investments should be measured at fair value in accordance with AS 30, with changes in fair value recognised in the statement of profit and loss in the period of the change.

    2. The requirements relating to accounting for joint ventures in consolidated financial statements, contained in this Statement, are applicable only where consolidated financial statements are prepared and presented by the venturer.

    2. Paragraph 27, appearing under the heading ‘Separate Financial Statements of a Venturer’ is amended. New paragraphs 28A is added. Amended paragraph 27 and new paragraphs 28A are as follows:

  8. #18
    Accounting Standards
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    Default Separate Financial Statements of a Venturer of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    Separate Financial Statements of a Venturer of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    27. In a venturer’s separate financial statements, interests in a jointly controlled entityentities, except interests covered under paragraph 29 of this Statement, should be accounted for either:

    (a) at cost, or

    (b) in accordance with AS 30, Financial Instruments: Recognition and Measurement.

    The same accounting should be applied for each category of interest in jointly controlled entities. Interests in jointly controlled entities covered under paragraph 29 of this Statement should be accounted for as an investment in accordance with Accounting Standard (AS) Financial Instruments: Recognition and Measurement.

    28. Each venturer usually contributes cash or other resources to the jointly controlled entity.
    These contributions are included in the accounting records of the venturer and are recognised in
    its separate financial statements as an investment in the jointly controlled entity.

    28A. To determine whether an interest in a jointly controlled entity accounted for at cost in
    accordance with paragraph 27 is impaired, an enterprise applies AS 28, Impairment of Assets. AS
    28 which explains how an enterprise reviews the carrying amount of its assets, how it determines
    the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an
    impairment loss is also applicable to impairment of an interest in a jointly controlled entity.

  9. #19
    Accounting Standards
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    Default Paragraph 29 is amended as follows of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    3. Paragraph 29 is amended as follows Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

    29. In its consolidated financial statements, a venturer should report its interest in a jointly controlled entity using proportionate consolidation except

    (a) an interest in a jointly controlled entity which is acquired and held exclusively with a view to its subsequent disposal in the near future1; and

    (b) 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 Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurement.

  10. #20
    Accounting Standards
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    Default From the date of discontinuing the use of the proportionate consolidation, interest in a jointly controlled entity should be accounted for

    4. Paragraph 40 is amended as follows:


    40. From the date of discontinuing the use of the proportionate consolidation, interest in a jointly controlled entity should be accounted for:

    (a) in accordance with Accounting Standard (AS) 21, Consolidated Financial Statements and Accounting for Investments in Subsidiaries in Separate Financial Statements, if the venturer acquires unilateral control over the entity and becomes parent within the meaning of that Standard; and

    (b) in all other cases, as an investment in accordance with Accounting Standard 30, Financial Instruments: Recognition and Measurement, or in accordance with Accounting Standard (AS) 23, Accounting for Investments in Associates as appropriate. For this purpose, cost of the investment should be determined as under:

    (i) 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

    (ii) the amount of net assets so ascertained should be adjusted with the carrying amount of the relevant goodwill/capital reserve (see paragraph 37) as at the date of discontinuance of proportionate consolidation.

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