27 Financial Reporting explained: this guide covers what 27 Financial Reporting means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
What Is AS 27?
Accounting Standard 27 (AS 27), titled "Financial Reporting of Interests in Joint Ventures," was issued by the ICAI and applies to 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.
Key Definitions
- Joint Venture — a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control
- Joint Control — the contractually agreed sharing of control over an economic activity; exists only when the strategic financial and operating decisions require the unanimous consent of the parties sharing control
- Venturer — a party to a joint venture who has joint control over it
Three Forms of Joint Ventures
1. Jointly Controlled Operations
Each venturer uses its own PPE and carries its own inventories. Each venturer incurs its own expenses and raises its own financing. The joint venture agreement usually provides for sharing of revenues and expenses. No separate entity is created.
Accounting: Each venturer recognises in its own financial statements:
- The assets it controls and the liabilities it incurs
- The expenses it incurs and its share of the income earned from the JV
2. Jointly Controlled Assets
The venturers jointly control (and often jointly own) one or more assets contributed to or acquired for the purpose of the joint venture. Each venturer may take a share of the output and bears an agreed share of expenses. No separate entity is formed.
Accounting: Each venturer recognises:
- Its share of the jointly controlled assets (classified by nature)
- Any liabilities it has incurred
- Its share of any liabilities incurred jointly
- Its share of income and its share of expenses
3. Jointly Controlled Entities
A separate entity (company, partnership, or other body) is established in which each venturer has an interest. The entity operates in the same way as other enterprises except that a contractual arrangement establishes joint control.
The entity controls the assets, incurs liabilities and expenses, and earns income in its own name. Each venturer is entitled to a share of the results.
Accounting for Jointly Controlled Entities
AS 27 requires venturers to use proportionate consolidation for jointly controlled entities in their consolidated financial statements:
- The venturer's share of each asset, liability, income and expense is combined line by line with similar items in the venturer's financial statements, or
- The venturer's share is reported as separate line items in the financial statements
Under proportionate consolidation, if a venturer holds 40% in a JV entity with total assets of Rs 10 crore, the venturer reports Rs 4 crore of assets in its consolidated balance sheet (40% x Rs 10 crore), combined line by line with its own assets.
Transactions Between Venturer and Joint Venture
When a venturer contributes or sells assets to the JV, recognition of any profit or loss should reflect the substance of the transaction. If the assets are retained by the JV, the venturer should recognise only the portion of profit attributable to the other venturers' interests (not its own share).
When a venturer purchases assets from the JV, the venturer should not recognise its share of profits until the asset is resold to an independent third party.
Separate Financial Statements of Venturer
In its separate (standalone) financial statements, a venturer should account for its interest in a jointly controlled entity as an investment under AS 13 (at cost or as per AS 13's valuation methods).
Disclosure Requirements
- List of significant joint ventures — name, description, and proportion of ownership interest
- The aggregate amounts of each of the assets, liabilities, income and expenses related to the venturer's interests in jointly controlled entities
- Contingent liabilities relating to the venturer's interest in JVs
- Capital commitments relating to JV interests
Conclusion
AS 27 ensures that a venturer's financial statements accurately reflect its rights, obligations, and economic interest in joint ventures. The proportionate consolidation method for jointly controlled entities provides a transparent view of the venturer's share of assets, liabilities, income and expenses — more informative than a single-line investment figure.
At TaxClue, our team of qualified CAs assists businesses with joint venture accounting, proportionate consolidation, and compliance with accounting standards. Contact us for expert assistance.