· A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity, which is subject to joint control.
· In cases, wherein an enterprise by a contractual arrangement establishes joint control over an entity which is a subsidiary (as per AS 21) the entity is to be consolidated under AS 21 and is not to be treated as a joint venture as per this Statement. The other venturer(s) may treat the same as a joint venture. (Limited Revision to AS 27 w.e.f 1-4-2004)
· Joint control is the contractually agreed sharing of control over an economic activity.
· For evaluating joint control, one need to consider whether the contractual arrangement provides protective rights or participating rights to the enterprise. The existence of participating rights would be evidence of joint control. With effect from 1-4-2004 this explanations is removed by Limited Revision to the Standard.
· 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. The venturer's share in the post acquisition reserves of the jointly controlled entity should be shown separately under the relevant reserves in the consolidated financial statements (ASI 28).
· Venturer to recognise in individual and consolidated financial statements its share of assets, liabilities, incomes and expenses in the jointly controlled operations and also in jointly controlled assets.
· In venturer’s separate financial statements any interest in a jointly controlled entity to be accounted as an investment and AS 13 to be followed.
· In a venturer’s consolidated financial statements interest in jointly controlled entity to be reported using proportionate consolidation except
o when interest is acquired and held with a view of disposal in near future to be considered as not more than 12 months from acquisition of relevant investments unless a longer period can be justified on the basis of facts and circumstances (ASI 8)
o when severe long-term restrictions that impair the ability to transfer funds to the venturer exists.
In such cases interest to be accounted as investments as per AS 13.
The venturer’s share in the post acquisition reserves of the jointly controlled entity should be shown separately under the relevant reserves in the consolidated financial statements (ASI-28).· A venturer to discontinue use of proportionate consolidation from the date
o it ceases to have joint control (may retain interest)
o use of proportionate consolidation is no longer appropriate.
In such cases AS 21 to be followed if venturer becomes parent and in other cases AS 13 and/or AS 23 to be followed.
· Cost in such cases is the venturers’ share in net assets on date of discontinuance of proportionate consolidation as adjusted by any goodwill/capital reserve recognised at the time of acquisition.
· In case of sale of assets by a venturer to the joint venture the venturer should recognise only that portion of gain or loss as attributable to the interests of the other venturers. Full loss to be booked in case of evidence of reduction in the net realisable value of current assets or on impairment loss.
· In case of purchase of assets by a venturer from a joint venture, the venturer should recognise its share of profit only on a resale of the asset to an independent party. Loss to be booked in case of reduction in net realisable value of current asset or impairment loss.
· In case of transactions between venturer and joint venture the above principles to be followed only in consolidated financial statements.
· Investor to follow AS 13, AS 21 and AS 23 as appropriate, for investments in joint ventures.
· Operators/Managers of joint ventures to account for fees as per AS 9.
· A venturer to disclose separately, in respect of the joint venture, contingent liabilities and capital commitments.
· A venturer to disclose list of joint ventures and interests in significant joint ventures.
A venturer to disclose aggregate amounts of each of the assets, liabilities, income and expenses related to its interests in the jointly controlled entities
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