Indian Accounting Standard (Ind AS) 31 : Interests in Joint Ventures
Scope
1. This Standard shall 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 venturers interests in jointly controlled entities held by:
(a) venture capital organisations
(b) [Refer to Appendix 1]
that upon initial recognition are designated as at fair value through profit or loss or are classified as held for trading and accounted for in accordance with Ind AS 39 Financial Instruments: Recognition and Measurement. Such investments shall be measured at fair value in accordance with Ind AS 39, with changes in fair value recognised in profit or loss in the period of the change. A venturer holding such an interest shall make the disclosures required by paragraphs 55 and 56.
2. A venturer with an interest in a jointly controlled entity is exempted from paragraphs 30 (proportionate consolidation) and 38 (equity method) when it meets the following conditions:
(a) the interest is classified as held for sale in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations;
(b) [Refer to Appendix 1]
(c) [Refer to Appendix 1]
Definitions
3. The following terms are used in this Standard with the meanings specified:
Control is the power to govern the financial and operating policies of an economic activity so as to obtain benefits from it.
The equity method is a method of accounting whereby an interest in a jointly controlled entity is initially recorded at cost and adjusted thereafter for the post-acquisition change in the venturers share of net assets of the jointly controlled entity. The profit or loss of the venturer includes the venturers share of the profit or loss of the jointly controlled entity.
An investor in a joint venture is a party to a joint venture and does not have joint control over that joint venture.
Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers).
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control.
Proportionate consolidation is a method of accounting whereby a venturers share of each of the assets, liabilities, income and expenses of a jointly controlled entity is combined line by line with similar items in the venturers financial statements or reported as separate line items in the venturers financial statements.
Separate financial statements are those presented by a parent, an investor in an associate or a venturer in a jointly controlled entity, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees.
Significant influence is the power to participate in the financial and operating policy decisions of an economic activity but is not control or joint control over those policies.
A venturer is a party to a joint venture and has joint control over that joint venture.
4. Financial statements in which proportionate consolidation or the equity method is applied are not separate financial statements, nor are the financial statements of an entity that does not have a subsidiary, associate or venturers interest in a jointly controlled entity.
5. Separate financial statements are those presented in addition to consolidated financial statements, financial statements in which investments are accounted for using the equity method and financial statements in which venturers interests in joint ventures are proportionately consolidated. Separate financial statements need not be appended to, or accompany, those statements, unless required by law.
6. [Refer to Appendix 1]
Forms of joint venture
7. Joint ventures take many different forms and structures. This Standard identifies three broad typesjointly controlled operations, jointly controlled assets and jointly controlled entitiesthat 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.
Joint control
8. Joint control may be precluded when an investee is in legal reorganisation or in bankruptcy, or operates under severe long-term restrictions on its ability to transfer funds to the venturer. If joint control is continuing, these events are not enough in themselves to justify not accounting for joint ventures in accordance with this Standard.
Contractual arrangement
9. The existence of a contractual arrangement distinguishes interests that involve joint control from investments in associates in which the investor has significant influence (see Ind AS 28). Activities that have no contractual arrangement to establish joint control are not joint ventures for the purposes of this Standard.
10. 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 usually 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.
11. The contractual arrangement establishes joint control over the joint venture. Such a requirement ensures that no single venturer is in a position to control the activity unilaterally.
12. 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 that have been agreed by the venturers in accordance with the contractual arrangement and delegated to the operator. If the operator has the power to govern the financial and operating policies of the economic activity, it controls the venture and the venture is a subsidiary of the operator and not a joint venture.
Jointly controlled operations
13. 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 property, plant and equipment 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 activities may be carried out by the venturers employees alongside the venturers similar activities. The joint venture agreement usually provides a means by which the revenue from the sale of the joint product and any expenses incurred in common are shared among the venturers.
14. An example of a jointly controlled operation is...
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