CA Final Paper 1Financial Reporting Unit 27 CA. Ridhima Dubey

CA Final Paper 1Financial Reporting Unit 27
CA. Ridhima Dubey
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Gaining an understanding about
Joint Venture
Accounting for Joint Venture
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Forms of Joint Ventures
Accounting for interest in Joint Ventures
Applicability to separate and consolidated financial statements
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Venturer: Party to joint venture and has control
Investor: Party to joint venture and does not have control
Control: Power to govern the financial and operating policies of
an economic activity to obtain benefit
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Two or more parties

Contractual arrangement
Economic motive
Joint control
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Existence of contractual arrangement - Mandatory
Content:
Activity, duration and reporting obligations of the joint venture
Appointment of the board of directors or equivalent governing body and the voting rights
Capital contributions by the venturer
Sharing of output, income, expenses or results of the joint venture
No venturer to have unilateral control. Joint Control arrangement are not
signed to safeguard the interest of only one party.
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Jointly
Controlle
d
operation
s
Jointly
controlle
d assets
Jointly
controlled
entities
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Own separate business
No separate legal entity
All venturers create and maintain their own asset
Venturer records only his own transaction
A common agreement
Use their own asset, meet their liability/expenses
Revenue generated/income earned is shared as per the contract
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No separate legal entity
Common control over asset
Asset used to derive benefit
Meets his own expenses
Expenses on jointly controlled asset is shared as per contract
Records his share of asset and income along with the share of expense
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Creation of a new entity
Pooling of resource
Entity purchases its own assets, create its own liabilities, incurs
expenses, earn income
Net results is shared among venturer
Separate sets of books are maintained
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Interest in a jointly controlled entity should
be accounted for as an investment in
accordance with Accounting Standard
(AS) 13, Accounting for Investments.
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Proportionate consolidation method
Exception
Investment is held for temporary purpose/subsequent disposal in near future
JV operates under severe long term restriction
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Discontinue the use of proportionate consolidation method when:
Joint control ceases
Joint venture operates under severe long term restriction impairing
ability to transfer
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Discontinue the use of proportionate consolidation method when:
Joint control ceases
Interest is
more than
50%
• AS 21
20%> Interest
<50%
• AS 23
Other cases
• AS 13
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Substance over form
Disclosed as separate line item
Provisions are similar to AS 21
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Difference between reporting dates of JVE and venturer FS cannot be
more than 6 months
Accounting policies to be uniform
Adjustment to asset/liability/income/expense only when legally
allowed
Interest of venturer < cost of investment=Goodwill
Interest of venturer > cost of investment=Capital Reserve
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•
•
•
Venturer transfer/sells assets to JV: Recognise profit
attributed to the other venturer
Recognition of full loss: Evident reduction in the NRV of
current asset or impairment loss
Purchase of asset from JV: share of profit is recognised
only when purchased assets are disposed
For Jointly controlled entity, above provisions are applicable
only for Consolidated financial statement
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Aggregate amount of contingent liability separately from other contingent liability:
Contingent liability incurred in relation to its interests in JV and its share in each
contingent liability jointly with other
Its share of contingent liability for which it is contingently liable
Those contingent liability arising because he is contingently liable
Commitment:
Capital commitment and its share thereof
Other: List of all JV’s and nature of interest
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MCQs
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
Mr. A enters into a verbal discussion with Mr.B to start
a company. They intend to share the profits in equal
proportion. Can they follow AS 27 for purpose of
accounting?
YES
NO
NO. AS 27 mandates requirement of a
written agreement
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Co. A gave loan to Co. B and Co. XYZ (together referred to as
‘Parties’). Parties entered into agreement, pursuant to the requirement of agreement Co. A
will be informed of all important decisions undertaken by the other parties. Co. A does not
enjoy any other benefit.
Co. A is a venturer
Co. A is an investor
C. Co. A has no interest in the Co. XYZ
D. Co. A is both venturer and an investor
Option B
Co. A is a investor, as the agreement is entered
to safeguard the interest.
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S.NO.
Particulars
Response
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All venturers are creating their own
assets and maintaining them
Joint Controlled Operations
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There exists a separate legal entity
Joint Controlled entity
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There is common control over assets
Joint Controlled Asset
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Venturers meets the expenses of the Joint Controlled Asset/
joint venture business from their funds Operation
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Co. A enters into an agreement with Co. B to start a yarn manufacturing business. Co. AB will
come into existence pursuant to this agreement.
Key content of the agreements are as under:
Ratio in which share capital is held – Co.A: 51%; Co.B: 49%
Equal number of directors representing both shareholders 2:2
Quorum of the meeting of BOD: minimum 2, with 1 nominee director of each party
Decisions of the Board only by unanimous affirmative vote of all the directors present in the
meeting
Profits sharing ratio would be 1:1.
Which all features of a Joint Venture can be identified? Can it be classified as Joint
Venture?
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There exists a Contractual Arrangement
There exists joint control
Undertaking an economic activity
Two or more parties have entered into an arrangement
1 and 3 are correct
C. 2 and 4 are correct
B. All the above
D. 1, 2 and 4 are correct
Option B.
All the above; YES it can be classified as Joint Venture entity
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

1.
Mr. A enters into JV with Mr.B and has contributed 33% of the
total fixed asset and has share of 40% in current asset and
current liabilities. Its share in net result is 50%.
Which of the following statements are correct in respect of
accounting for the JV?
Consolidation would be done using proportionate consolidation method in
the CFS
2.
Principles of AS 21 to used in CFS
3. In the separate FS of the Mr.A, interest in JV would be shown as
Investment in accordance with AS 13
A. Only 1 is correct
B. Only 2 and 3
C. All 3 are correct
D. None of the above
Option C all 3 are correct
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I
Equity and liabilities
1. Shareholder funds
Share capital
2. Current Liabilities
TOTAL
II
Assets
Non -current Assets
Fixed Assets:
Current Assets
Note No.
(Rs.)
1
1,00,000
2
50,000
1,50,000
3
4
75,000
75,000
1,50,000
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Notes to Accounts
1
2
3
4
Share Capital
A
B
33,000
67,000
1,00,000
Current Liabilities
A
B
20,000
30,000
50,000
Fixed Assets
A
B
25,000
50,000
75,000
Current Assets
A
B
30,000
40,000
75,000
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Co. A is an oil production companies. It has entered into an agreement with other oil
production company to use its the pipeline to transport its own product in return for
which it bears an agreed proportion of the expenses of operating the pipeline.
How would it be classified?
A. Joint controlled asset
B. Joint Control entity
C. Investor
D. Joint Control Operations
Option A…Co. A is sharing the asset jointly and thus it would
be appropriate to classify it as Joint Control Asset
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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:
A. Goodwill
B. Capital Reserve
C. Negative Goodwill
D. General Reserve
Option A: Excess should be recognised as Goodwill
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You noticed that Co. Y was one of the venturer’s in entity say
entity P. Till year 2012-13 Co.Y’s CFS has disclosed the share of
JV. During the current year, Co. Y decides to discontinue the use
of proportionate consolidation of JV in CFS. Under what
circumstance Co. Y can discontinue the consolidation?
A. Co. Y ceases to have joint control
B. Co. P operates under severe long term restrictions
C. Co. Y under no circumstance can discontinue consolidation
D. Co. Y can discontinue as per its Company’s accounting policy
Option A and B are correct
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
Which of the following statements are correct?
A. Difference between the reporting date of Venturer FS and JV FS
should not be more than 6 months
B. Accounting policies followed in the preparation of the FS of the
venturer and joint venture entity should be uniform
C. Assets can be adjusted against another liability
A and B are correct
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Written contract is a mandatory
Careful analysis of contract to establish whether the entity is a
• Subsidiary Or
• Associate Or
• Joint Venture
Proportionate Consolidation Method to be followed in CFS
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
Reporting of interest in the Joint Ventures in the
FS of investor
Operators of Joint Venture
Disclosure
◦ Contingent liabilities
◦ Commitment
◦ Others
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