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Professional Advice on Joint Venture Consolidation
02-17-2009, 06:50 PM,
#16
 
Tariq,

The services provided (billed at 50M) by A to JV cost it at 40M thus producing total gain of 10M.

In proportionate consolidation, you will include 45% of each of these three figures i.e. to the extent of interests of other venturers (paragraph 48 of IAS 31). This means you will eliminate your own 55% share of this gain and INCLUDE following figures (to the extent of this very transaction) in consolidation

Revenue (50*45%)= 22.5

Cost (40*45%) = 18

Profit (10*45%)= 4.5

The figures of joint venture (stand alone) will be taken on proportionate basis in the consolidation.

In other words, for conslidation, take figures of A (excluding this transaction and add the above figures to calculate 'A's revised figures to be taken in consolidation. Then add the figures of JV through proprotionate consolidation method and find the final results.

I hope you can recalculate the figures. However, if you need further help please let me know.


Regards,


KAMRAN.
Reply
02-18-2009, 02:15 PM,
#17
 
Kamran,

I really appreciate your response but i need some more clarification.
You mean method 1 is correct. Another Venturer A has 45% holding,so the working will b as follow

Revenue (50x55%) 27.5
Cost (40x55%) 22.0
Profit (10x55%) 5.5

1. As per IAS-31 para 48, Sale of assets to by venturer to JV is mentioned,but revenue is differ from assets,(Revenue is cost of goods and services sold).
2. If we eliminate 100% internal billing to JV, how we can justify this with IFRS.

Regards
Tariq
Reply
02-18-2009, 05:25 PM,
#18
 
Dear

In your separate financial statement you don't have to eliminate anything.

However, if you are preparing consolidated financials using proprotionate method you will have to eliminate the share of profit specific to you i.e. 55% amount.

So the figures taken must be those which are attributed to other venturers i.e. 45% in your case that would be as under

Revenue 22.5
Cost 18
Profit 4.5

I meant what I said. The figures mentioned by you in above post will not be taken in consolidated accounts.

Please re-visit IAS 31's paragraph 48. You have to take the amount attributed to other venturers.


Regards,


KAMRAN.
Reply
02-18-2009, 06:30 PM,
#19
 
Dear Mr. Kamran

a) I am only talking about consolidation not about the individual accounts of Venturer A.

Where A & B venturer with 45% and 55% holding respectively we are consolidating for A Venturer.

You suggested following elimination entry (eliminating upto45% for CF)

Revenue (50*45%)= 22.5

Cost (40*45%) = 18

Profit (10*45%)= 4.5



My working for net effects after elimination entry (directly taking 55% for CF)


Revenue (50x55%) 27.5
Cost (40x55%) 22.0
Profit (10x55%) 5.5

Both are one and same only.

b) I studied IAS-31 para-48, it is ok now.

c) If both venturers have mutual understanding that they will not include inter joint venture revenue for consolidation purpose and only they will take upto share holding for each venturer from sale made by JV to thirty parties. I mean to say 100% elimination of internal sale for consolidation purpose. For this 100% elimination we have two practical references here in UAE but both are Korean companies.


Thanks you all for contributing your valuable suggestions for query

Warm Regards
Tariq
Reply
02-18-2009, 09:01 PM,
#20
 
Tariq,

I thought A has 55% holding. Your working is okay if it has 45%. I mean the working/option 1 in the sheet you e-mailed.

Regards,


KAMRAN.
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