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

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    Accounting Standards
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    Default 27 Accounting Standard 27 - Financial Reporting of Interests in Joint Ventures -

    Accounting Standard (AS) 27
    (issued 2002)
    FinancialReporting of Interests in JointVentures
    (This Accounting Standard includes paragraphs set in
    bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be
    read in the context of its objective and the Preface to the Statements of Accounting Standards
    .)


    Accounting Standard (AS) 27, 'Financial Reporting of Interests in Joint Ventures', issued by the Council of the Institute of CharteredAccountants of India, comes into effect in respect of accounting periods commencing on or
    after 01.04.2002. In respect of separate financial statements of an enterprise, this Standard is mandatory in nature
    2 from that date. In respect of consolidated financial statements of an enterprise, this Standard is mandatory in nature2 where the enterprise prepares and presents the consolidated financial statements in respect of accounting periods
    commencing on or after 01.04.2002. Earlier application of the Accounting Standard is encouraged. The following is the text of the Accounting Standard.


  2. #2
    Accounting Standards
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    Default Objective of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

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


    The objective of this Statement is to set out principles and procedures for accounting for interests in joint ventures and reporting of joint venture assets, liabilities, income and expenses in the financial statements of venturers and investors.

  3. #3
    Accounting Standards
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    Default Scope of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

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


    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.

    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.

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

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


    3. For the purpose of this Statement, the following terms are used with the meanings specified:
    A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity, which is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity.

    Control is the power to govern the financial and operating policies of an economic activity so as to obtain benefits from it. A venturer is a party to a joint venture and has joint control over that
    joint venture. An investor in a joint venture is a party to a joint venture and does not have joint control over that joint venture. Proportionate consolidation is 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.

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

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

    4. Joint ventures take many different forms and structures. This Statement identifies three broad types - jointly controlled operations, jointly controlled assets and jointly controlled entities - which are commonly described as, and meet the definition of, joint ventures. The following characteristics are common to all joint ventures:

    (a) two or more venturers are bound by a contractual arrangement; and

    (b) the contractual arrangement establishes joint control.

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

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

    5. The existence of a contractual arrangement distinguishes interests which involve joint control from investments in associates in which the investor has significant influence (see Accounting Standard (AS) 23, Accounting for Investments in Associates in Consolidated Financial Statements). Activities which have no contractual arrangement to establish joint control are not joint ventures for the purposes of this Statement.


    6. In some exceptional cases, an enterprise by a contractual arrangement establishes joint control over an entitywhich is a subsidiary of that enterprise within themeaning ofAccounting Standard (AS) 21,Consolidated Financial Statements. In such cases, the entity is consolidated under AS 21 by the
    said enterprise, and is not treated as a joint venture as per this Statement. The consolidation of such an entity does not necessarily preclude other venturer(s) treating such an entity as a joint venture.

    7. The contractual arrangement may be evidenced in a number of ways, for example by a contract between the venturers or minutes of discussions between the venturers. In some cases, the arrangement is incorporated in the articles or other by-laws of the joint venture. Whatever its form, the contractual arrangement is normally in writing and deals with such matters as:


    (a) the activity, duration and reporting obligations of the joint venture;

    (b) the appointment of the board of directors or equivalent governing body of the joint venture and the voting rights of the venturers;

    (c) capital contributions by the venturers; and

    (d) the sharing by the venturers of the output, income, expenses or results of the joint venture.


    8. The contractual arrangement establishes joint control over the joint venture. Such an arrangement ensures that no single venturer is in a position to unilaterally control the activity. The arrangement identifies those decisions in areas essential to the goals of the joint venturewhich require the consent of all the venturers and those decisions which may require the consent of a specified majority of the venturers.

    9. As a limited revision to AS 27, the Council of the Institute decided to omit this paragraph in 2004. The revision came into effect in respect of accounting periods commencing on or after 1.4.2004 (see 'The Chartered Accountant', February 2004, pp. 820). The erstwhile paragraph was as under:
    "9. The contractual arrangement will indicate whether or not an enterprise has joint control over the venture, along with the other venturers. In evaluating whether an enterprise has joint control over a venture, it would need to be considered whether the contractual arrangement provides protective rights or participating rights to the enterprise. Protective rights merely allow an enterprise to protect its interests in the venture in situations where its interests are likely to be adversely affected. The
    participating rights enable the enterprise to jointly control the financial and operating policies related to the venture's ordinary course of business. The existence of participating rights would evidence joint control."

    10. The contractual arrangement may identify one venturer as the operator or manager of the joint venture. The operator does not control the joint venture but acts within the financial and operating policies which have been agreed to by the venturers in accordance with the contractual arrangement
    and delegated to the operator.

  7. #7
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    Default Jointly Controlled Operations of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

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

    11. The operation of some joint ventures involves the use of the assets and other resources of the venturers rather than the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Each venturer uses its own fixed assets and carries its own inventories. It also incurs its own expenses and liabilities and raises its own finance, which represent its own obligations. The joint venture's activities may be carried out by the venturer's employees alongside the venturer's similar activities. The joint venture agreement usually provides means by which the revenue from the jointly controlled operations and any expenses incurred in common are shared among the venturers.


    12. An example of a jointly controlled operation is when two or more venturers combine their operations, resources and expertise in order to manufacture, market and distribute, jointly, a particular product, such as an aircraft. Different parts of the manufacturing process are carried out by each of the venturers. Each venturer bears its own costs and takes a share of the revenue from the sale of the aircraft, such share being determined in accordance with the contractual arrangement.

    13. 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:

    (a) the assets that it controls and the liabilities that it incurs; and

    (b) the expenses that it incurs and its share of the income that it earns from the joint venture.


    14. Because the assets, liabilities, income and expenses are already recognised in the separate financial statements of the venturer, and consequentlyin its consolidated financial statements, no adjustments or other consolidation procedures are required in respect of these items when the
    venturer presents consolidated financial statements.

    15. Separate accounting records may not be required for the joint venture itself and financial statements may not be prepared for the joint venture. However, the venturers may prepare accounts for internal management reporting purposes so that they may assess the performance of the joint venture.

  8. #8
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    Default Jointly Controlled Assets of Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures

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


    16. Some joint ventures involve the joint control, and often the joint ownership, by the venturers of one ormore assets contributed to, or acquired for the purpose of, the joint venture and dedicated to the purposes of the joint venture. The assets are used to obtain economic benefits for the venturers.

    Each venturer may take a share of the output from the assets and each bears an agreed share of the expenses incurred.


    17. These joint ventures do not involve the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Each venturer has control over its share of future economic benefits through its share in the jointly controlled asset.


    18. An example of a jointly controlled asset is an oil pipeline jointly controlled and operated by a number of oil production companies. Each venturer uses the pipeline to transport its own product in return for which it bears an agreed proportion of the expenses of operating the pipeline. Another example of a jointly controlled asset is when two enterprises jointly control a property, each taking a share of the rents received and bearing a share of the expenses.


    19. In respect of its interest in jointly controlled assets, a venturer should recognise, in its separate financial statements, and consequently in its consolidated financial statements:


    (a) its share of the jointly controlled assets, classified according to the nature of the assets;

    (b) any liabilities which it has incurred;

    (c) its share of any liabilities incurred jointly with the other venturers in relation to the joint venture;

    (d) 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

    (e) any expenses which it has incurred in respect of its interest in the joint venture.

    20. In respect of its interest in jointly controlled assets, each venturer includes in its accounting records and recognises in its separate financial statements and consequently in its consolidated financial statements:


    (a) its share of the jointly controlled assets, classified according to the nature of the assets rather than as an investment, for example, a share of a jointly controlled oil pipeline is classified as a fixed
    asset;

    (b) any liabilitieswhich it has incurred, for example, those incurred in financing its share of the assets;

    (c) its share of any liabilities incurred jointly with other venturers in relation to the joint venture;

    (d) 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

    (e) any expenses which it has incurred in respect of its interest in the joint venture, for example, those related to financing the venturer's interest in the assets and selling its share of the output.
    Because the assets, liabilities, income and expenses are already recognised in the separate financial statements of the venturer, and consequently in its consolidated financial statements, no adjustments or other consolidation procedures are required in respect of these items when the venturer presents consolidated financial statements.

    21. The treatment of jointly controlled assets reflects the substance and economic reality and, usually, the legal form of the joint venture. Separate accounting records for the joint venture itself may be limited to those expenses incurred in common by the venturers and ultimately borne by the
    venturers according to their agreed shares. Financial statements may not be prepared for the joint venture, although the venturers may prepare accounts for internal management reporting purposes so that they may assess the performance of the joint venture.

  9. #9
    Accounting Standards
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    Default Jointly Controlled Entities of

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


    22. A jointly controlled entity is a joint venture which involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. The entity operates in the same way as other enterprises, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.


    23. Ajointly controlled entity controls the assets of the joint venture, incurs liabilities and expenses and earns income. It may enter into contracts in its own name and raise finance for the purposes of the joint venture activity. Each venturer is entitled to a share of the results of the jointly controlled
    entity, although some jointly controlled entities also involve a sharing of the output of the joint venture.

    24. An example of a jointly controlled entity is when two enterprises combine their activities in a particular line of business by transferring the relevant assets and liabilities into a jointly controlled entity. Another example is when an enterprise commences a business in a foreign country in
    conjunction with the government or other agency in that country, by establishing a separate entitywhich is jointly controlled by the enterprise and the government or agency.

    25. Many jointly controlled entities are similar to those joint ventures referred to as jointly controlled operations or jointly controlled assets. For example, the venturers may transfer a jointly controlled asset, such as an oil pipeline, into a jointly controlled entity. Similarly, the venturers may
    contribute, into a jointly controlled entity, assets which will be operated jointly. Some jointly controlled operations also involve the establishment of a jointly controlled entity to deal with particular aspects of the activity, for example, the design, marketing, distribution or after-sales service of the product.

    26. A jointly controlled entity maintains its own accounting records and prepares and presents financial statements in the same way as other enterprises in conformity with the requirements applicable to that jointly controlled entity.

  10. #10
    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, interest in a jointly controlled entity should be accounted for as an investment in accordance with Accounting Standard (AS) 13, Accounting for
    Investments.


    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.

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