How are joint ventures accounted for?

i. What is an investment in a joint venture?

- A contractual agreement involved two or more parties.

- The parties involved have joint control over the business activity.

ii. Types of Joint venture

- Jointly controlled operations

- Jointly controlled assets

- Jointly controlled entities

iii. Recognition and measurement

1. Jointly controlled operations

Definition:

- Two or more venturers use their resources or expertise to produce a product.

- Each venture bears its expenses and liabilities and raises its finance.

- The revenue from the sale of the joint product and any expenses incurred in common are shared among the venturers.

Recognition in venturer's financial statements:

- Assets and liabilities incurred

- Expenses incurred and share of income

2. Jointly controlled assets

Definition:

- The joint control, and often the joint ownership, of assets dedicated to the joint venture.

Recognition in venturer's financial statements:

- share of the jointly controlled assets

- share of any liabilities incurred jointly or incurred by the venturer

- share of income

- share of expenses incurred.

3. Jointly controlled entities

Definition:

- A corporation, partnership, or other entity in which each venturer has an interest.

Recognition in venture’s financial statements:

(i) Cost model

- Cost less accumulated impairment losses

- Recognise distributions received from the investment as income

(ii) Equity model

- Recognise at the transaction price (including transactions costs)

- Subsequently adjusted to reflect the investor’s share of the profit or loss

(iii) Fair value model

- Initially, measured at transaction price (exclude transaction cost).

- Subsequently, measured at fair value, any changes recognized in profit or loss

4. What differentiates an interest in the joint venture from an investment in an associate?

Investment in associate = The investor has significant influence over the investee, by possessing the power to participate in their financial and operating decisions.

Joint venture = The parties involved have the power to joint control over the arrangement.

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AccountKtp KtpApril 12, 2022accounting standard for JV, MPERS 15

How are joint ventures accounted for?

How are joint ventures accounted for?

i. What is an investment in a joint venture?

ii. Types of Joint venture

iii. Recognition and measurement

2. Jointly controlled assets

3. Jointly controlled entities

4. What differentiates an interest in the joint venture from an investment in an associate?

Visit Us

KTP (Audit, Tax, Advisory)

THK (Secretarial, Account, Payroll, Advisory)

KTP Lifestyle

KTP Career

We are affiliated with THK which specializes in secretarial, accounting & payroll and advisory for more than 25 years of history.