Accounting for Joint Ventures and Other Ownership Interests in Business

Accounting for Joint Ventures and Other Ownership Interests in Business: A Practical, Conceptual, and Standards-Referenced Guide under AS 23, AS 27, Ind AS 28 and Ind AS 111

1. Executive Summary

Accounting for joint ventures and other ownership interests is a recurring, high-stakes topic for preparers, auditors and analysts in India. Two parallel frameworks shape practice—Accounting Standards (AS) for entities that still report under AS, and Indian Accounting Standards (Ind AS) converged with IFRS for Ind AS reporters. For joint arrangements and associates, AS 23 (Accounting for Investments in Associates in Consolidated Financial Statements) and AS 27 (Financial Reporting of Interests in Joint Ventures) provide the backbone in the AS regime; their corresponding Ind AS standards are primarily Ind AS 28 (Investments in Associates and Joint Ventures) and Ind AS 111 (Joint Arrangements), with interaction from Ind AS 110 (Consolidated Financial Statements) and Ind AS 27 (Separate Financial Statements). This article brings together the fundamental concepts in these standards, clarifies differences between the frameworks, and illustrates practical complexities using corporate-style case studies and numeric examples.

Why this matters in practice: ownership structures are rarely “plain vanilla”. Indian groups commonly deploy associates, JVs, special purpose vehicles (SPVs), separate-vehicle partnerships, and consortium-style arrangements in infrastructure, banking/fintech partnerships, energy, IT services, and manufacturing. Getting the classification and measurement right can materially change reported profit, net assets, leverage ratios, dividend capacity, and regulatory capital—notably for banks that hold strategic stakes.

2. Conceptual Foundations Embedded in the Standards

2.1 Substance over form and control spectrum

The standards reflect a spectrum of influence:

• Control (subsidiary) → consolidate line-by-line (AS 21 / Ind AS 110).
• Joint control (joint venture/joint operation) → proportionate consolidation or equity method under AS 27; equity method for joint ventures under Ind AS 28; and classification under Ind AS 111.
• Significant influence (associate) → equity method under AS 23 and Ind AS 28.
• Passive interest (financial asset) → AS 13 or Ind AS 109 (FVOCI/FVTPL).

Across both frameworks, substance over legal form is critical—the presence of protective rights, veto rights over key activities, participating rights, and relevant activities as defined in modern consolidation theory determines the accounting. Ind AS adds the IFRS-inspired lens of “power, returns, and linkage” (Ind AS 110) which often moves the analysis beyond simple shareholding percentages.

2.2 Unit of account, performance reporting and stewardship

The equity method is not a valuation method; it is a one-line consolidation capturing the investor’s share in the net assets and profits/losses of the investee after acquisition. This method preserves stewardship by reflecting that the investor influences—not controls—dividend policy and key activities. Proportionate consolidation under AS 27 (still applicable for certain AS reporters) focuses on rights to assets and obligations for liabilities jointly controlled, whereas Ind AS 111 re-characterises joint arrangements as either joint operations (rights to assets/liabilities) or joint ventures (rights to net assets).

2.3 Reliability, prudence and faithful representation

Impairment triggers, allocation of purchase price to fair values (Ind AS), recognition of losses beyond the carrying amount, and elimination of unrealised profits on upstream/downstream transactions are prudence-driven filters embedded in AS 23/27 and Ind AS 28/111. For Ind AS reporters, expected credit loss (ECL) overlays in Ind AS 109 may be relevant where long-term loans to JVs/associates exist.

3. Mapping Standards Across Frameworks

3.1 AS regime

• AS 23 — Associates in consolidated financial statements: equity method, significant influence normally presumed at ≥20% unless rebutted.
• AS 27 — Financial reporting of interests in joint ventures: types include jointly controlled operations, assets and entities. Proportionate consolidation for jointly controlled entities in the consolidated financial statements; equity method in separate stand-alone? (AS 27 focuses on consolidated reporting; AS 13/AS 21 interplay applies).
• AS 13 — Accounting for Investments: measurement in standalone FS (cost/less impairment; long-term vs current investments).

3.2 Ind AS regime

• Ind AS 111 — Joint Arrangements: classify into (i) Joint Operation (rights to assets/obligations for liabilities) with line-by-line recognition of share of assets, liabilities, income and expenses in the investor’s own books, and (ii) Joint Venture (rights to net assets) accounted using Ind AS 28 equity method.
• Ind AS 28 — Investments in Associates and Joint Ventures: equity method mechanics, impairment (Ind AS 36), transactions with associates/JVs (elimination of unrealised profits), and additional disclosures (Ind AS 112).
• Ind AS 110/27 — Control model and separate financial statements: consolidation of subsidiaries and option to carry investments at cost or as per Ind AS 109 in separate financial statements.
• Ind AS 109 — Financial Instruments: if an interest does not meet associate/JV criteria, account as a financial asset (FVTPL/FVOCI).

Key differences in practice:

• Proportionate consolidation for jointly controlled entities is available under AS 27 but not under Ind AS (for JVs). Ind AS requires equity method for joint ventures and line-by-line only for joint operations.
• Ind AS requires fair value-based purchase price allocation on acquiring an associate/JV (to the extent of the investor’s share) and subsequent recognition of amortisation/depreciation impacts through the share of profit. AS typically uses carrying amounts without such PPA rigor.
• Loss recognition and “downstream/upstream” elimination rules are more detailed under Ind AS 28, with explicit guidance on transactions that create gains/losses, including partial disposals with retained significant influence.

4. Step-by-Step: Equity Method under AS 23 and Ind AS 28

4.1 Initial recognition

• Record investment at cost, including transaction costs. Under Ind AS, if part of the consideration is contingent or includes financial instruments at fair value, initial carrying amount reflects fair value at acquisition date.

• Identify investor’s share of fair value adjustments to investee’s identifiable assets and liabilities (Ind AS only). Recognise the investor’s share of depreciation/amortisation on these fair value adjustments over useful lives.

4.2 Subsequent measurement

• Carrying amount = cost + investor’s share of post-acquisition profits/losses + other comprehensive income (for Ind AS) – dividends received – investor’s share of OCI losses – impairment.
• If the investor’s share of losses equals or exceeds the carrying amount of the investment, further loss recognition is suspended unless the investor has legal/constructive obligations to make payments on behalf of the associate/JV. For Ind AS reporters, long-term interests that in substance form part of the net investment (e.g., quasi-equity loans) are included in the loss allocation (subject to Ind AS 109 impairment).

4.3 Elimination of unrealised profits

• Upstream (associate/JV → investor) and downstream (investor → associate/JV) transactions require elimination of the investor’s share of unrealised profits. Downstream gains are eliminated in full to the extent of the investor’s interest; upstream gains are eliminated to the extent of the investor’s share in the associate/JV. The inventory/PP&E carrying amounts are adjusted accordingly.

4.4 Impairment

• AS: indicators-based impairment test under AS 28 (Impairment of Assets) for the carrying amount of the investment.
• Ind AS: Ind AS 36 impairment applies to the investment’s carrying amount after equity method adjustments; long-term interests are tested under Ind AS 109 ECL plus Ind AS 36 where relevant.

5. Step-by-Step: Joint Arrangements under AS 27 and Ind AS 111

5.1 AS 27 classification

• Jointly controlled operations and assets → recognise pro-rata share of assets, liabilities, income, and expenses in the investor’s financial statements.

• Jointly controlled entities → proportionate consolidation in consolidated financial statements; equity method in the investor’s single-entity FS is not mandated—AS 13 applies for investments.

5.2 Ind AS 111 classification

• Joint operation: contractual arrangement plus the terms/structure confer rights to assets and obligations for liabilities. Indicators include no separate vehicle or a separate vehicle that is not “separate enough” (ring-fenced) and partners having direct rights/obligations.
• Joint venture: parties have rights to net assets of the arrangement—typically through a separate vehicle with limited liability and residual returns.

6. Numeric Illustration 1 — Equity Method for an Associate (AS 23 vs Ind AS 28)

Facts: Bank A (Ind AS reporter) acquires 25% of FinTech X on 1 April 20X1 for ₹1,000 crore. Fair value adjustments at acquisition (investor’s share) relate to identifiable technology intangible (FV uplift ₹200 crore, 5-year life) and brand (FV uplift ₹100 crore, 10-year life). FinTech X reports profit after tax (PAT) of ₹600 crore in 20X1–X2 and ₹900 crore in 20X2–X3; dividends of ₹100 crore and ₹150 crore are declared in the two years respectively (Investor’s share 25%).

Computation (Ind AS 28):

Year 1 share of profit = 25% × 600 = 150. Amortisation of FV uplifts: technology 200/5=40, brand 100/10=10 → investor’s share of amortisation = 40+10=50 per year. Net share recognised in P&L = 150 – 50 = 100. Dividend received = 25% × 100 = 25 (reduces carrying amount, not P&L).

Year 2 share of profit = 25% × 900 = 225; less amortisation 50 → 175. Dividend received = 25% × 150 = 37.5.

Carrying amount movement:

Opening: 1,000

+ Year 1 net share 100 – dividend 25 → 1,075

+ Year 2 net share 175 – dividend 37.5 → 1,212.5

AS 23 comparison: no explicit FV PPA amortisation; the investor would typically recognise share of profit 150 and 225 respectively, reducing by dividends, yielding a higher carrying amount (1,000 +150–25 +225–37.5 = 1,312.5) absent impairment—highlighting a key divergence and analytical caution for trend comparisons across regimes.

7. Numeric Illustration 2 — Joint Venture: Proportionate Consolidation (AS 27) vs Equity Method (Ind AS 28)

Facts: InfraCo (AS reporter) and UtilityCo form JV GridCo (50:50). GridCo is a separate company with limited liability. Year 1 balance sheet of GridCo: PPE ₹2,000; debt ₹1,200; equity ₹800. Income statement shows revenue ₹1,500; EBITDA ₹450; interest ₹120; depreciation ₹200; tax ₹40; PAT ₹90. No dividends in Year 1.

AS 27 (proportionate consolidation in consolidated FS of InfraCo):

• InfraCo consolidates 50% of GridCo’s assets and liabilities: PPE +1,000; debt +600; equity eliminated.
• P&L: 50% of revenues and expenses line-by-line → revenue +750; EBITDA +225; interest +60; depreciation +100; tax +20; PAT +45.
• Ratios such as EBITDA margin and leverage include JV lines, improving transparency over resources employed.

Ind AS 28 (equity method in Ind AS reporter’s consolidated FS):

• One-line “Share of profit of JV” = 50% × 90 = 45 in P&L.
• Balance sheet shows “Investment in JV” carrying amount adjusted by profits and dividends.
• Leverage ratios and asset turnover exclude JV debt/assets from line items—analysts should use “including JV proportionate basis” disclosures to assess capital employed.

8. Case Study A — Manufacturing JV with Embedded Performance Guarantees (Ind AS 111/28)

Background: AutoCo (India) and GlobalParts (EU) form AutoParts JV Pvt Ltd (50:50). The JV manufactures critical EV components exclusively for AutoCo for 7 years. Shareholders’ agreement grants joint control; neither party has unilateral power. AutoCo provides a minimum offtake guarantee and a 7-year subordinated loan of ₹300 crore (below market interest).

Accounting analysis (AutoCo consolidated under Ind AS):

• Classification: separate vehicle with rights to net assets → Joint Venture.
• Equity method under Ind AS 28 for the investment.
• Subordinated loan: a long-term interest forming part of the net investment. Apply Ind AS 109 for ECL and effective interest rate (EIR) accounting, and include in loss allocation under Ind AS 28.
• Minimum offtake guarantee: may create variable returns and additional exposure; disclose nature and extent of interests (Ind AS 112). If the guarantee is onerous, recognise a provision under Ind AS 37.
• Transfer pricing and downstream sales: eliminate unrealised profits on inventory not yet sold to external parties. If AutoCo supplies raw materials to the JV at a margin, eliminate the investor’s share of the unrealised profit within the JV’s inventory.

Key challenge: In early years, JV losses plus ECL on the quasi-equity loan can push the investor’s share of losses beyond the investment’s carrying amount—loss recognition continues against the loan to the extent of exposure; thereafter, suspend unless further obligations exist.

9. Case Study B — Infrastructure Consortium Qualifying as a Joint Operation (Ind AS 111)

Background: Three entities (BuildCo 40%, RoadsCo 40%, FinCo 20%) bid to construct and operate a toll road under an EPC plus O&M contract; the SPV is unincorporated with partners jointly and severally responsible for warranties and cost overruns. Project assets are legally titled in the SPV’s name but lenders have direct recourse to partners; profits are distributed based on output delivered, not equity shares.

Accounting analysis:

• Despite a separate bank account and project governance, the contractual structure gives partners direct rights to assets and direct obligations for liabilities → Joint Operation.

• Each partner recognises its share of assets (PPE under Ind AS 16 or intangible under Ind AS 38/IFRIC 12 analogues), liabilities (including decommissioning), revenue and expenses in its own financial statements.

• Borrowings: if partners are jointly and severally liable, recognise the full obligation with a corresponding receivable from other partners for their shares, or recognise share of the obligation plus appropriate disclosures—depending on legal enforceability.

10. Case Study C — Bank’s Strategic Stake in a Fintech as an Associate with Call Options

Background: A scheduled commercial bank (Ind AS voluntarily adopted for group) acquires 19.5% of a fintech, but also holds substantive call options that can bring total interest to 28% within 18 months. Board representation and contractual rights allow participation in policy decisions about product strategy and risk management; certain reserved matters require bank consent.

Accounting analysis:

• Significant influence can exist below 20% where other indicators (board seat, policy participation, substantive options) are present. Under Ind AS 28, treat as an associate from acquisition date if facts and circumstances support significant influence.
• Measurement: equity method; initial cost includes fair value of options if they are part of the consideration.
• If options are separate derivatives not part of consideration, account under Ind AS 109 at fair value through profit or loss, with careful boundary-setting to avoid double counting of influence-related value.
• Regulatory capital: equity method profits may not be fully distributable; prudential filters may apply—disclose appropriately.

11. Practical Application Topics and Journal Entry Patterns

11.1 Downstream sale of machinery to JV (Ind AS reporter)

• Investor sells machine to JV at carrying amount ₹1,000, margin 20%. Sale price = 1,200; JV depreciates over 5 years straight-line.

Journal at investor on sale date: recognise revenue 1,200 and gain 200.

Elimination: defer investor’s share of unrealised gain 200 × investor’s interest (say 40%) = 80 against share of profit. Over time, reverse via lower elimination as JV depreciates: annual reversal = (200/5) × 40% = 16.

11.2 Upstream sale of inventory by associate to investor

• Associate sells goods to investor with unrealised profit embedded in investor’s closing inventory of ₹50. Investor’s share in associate = 30%.

Adjustment: reduce share of profit by 30% × 50 = 15; reduce inventory by 15 (equity pickup is net of elimination).

11.3 Losses exceeding carrying amount and long-term interests (Ind AS 28/109)

• Investment carrying amount exhausted; investor also has a ₹100 crore long-term loan at amortised cost to the JV. JV incurs further losses; investor’s share of additional loss = ₹60 crore.

Allocation: apply against the ₹100 crore long-term interest (subject to ECL). Carrying amount of the loan reduces to ₹40 crore. Recognise ECL as required—if lifetime credit risk has increased, recognise lifetime ECL.

12. Numeric Illustration 3 — Partial Disposal with Retained Significant Influence (Ind AS)

Facts: Investor holds 35% in Associate Y. Sells 10% but retains 25% and significant influence. Proceeds = ₹500 crore; carrying amount of the 35% interest = ₹900 crore. OCI reserves related to Y include FVOCI reserve of ₹40 crore attributable to investor.

Accounting:

• Continue equity method. Gain/loss = difference between consideration and proportionate carrying amount derecognised: carrying amount of the 10% slice = 900 × (10/35) = 257.14. Gain = 500 – 257.14 = 242.86 (rounded).
• Reclassify a proportionate share of OCI related to the associate to profit or loss or retained earnings as per underlying nature (e.g., for FVOCI equity instruments where recycling is disallowed, adjust within equity; for cash flow hedges, follow hedge accounting rules).
• Disclosures: nature of change, percentage, and impact on share of profit going forward.

13. Comparison Table — AS 27 vs Ind AS 111/28 in Common Situations

• Separate vehicle with limited liability, profit sharing by equity:

– AS: Jointly controlled entity → proportionate consolidation in consolidated FS.

– Ind AS: Joint venture → equity method only (line item “share of profit/loss of JV”).

• Unincorporated consortium with joint and several obligations:

– AS: Jointly controlled operations/assets → recognise share of assets/liabilities/income/expenses.

– Ind AS: Joint operation with similar accounting.

• Associate with potential voting rights (options/warrants) that are currently exercisable:

– AS 23: consider substance; often focus on present ownership + agreements.

– Ind AS 28: consider whether rights are substantive; may lead to significant influence even below 20%.

• Downstream sale of PPE at a profit to JV:

– AS: eliminate investor’s share to the extent of interest.

– Ind AS: eliminate in full to the extent of investor’s interest; reverse through depreciation.

14. Disclosures and Governance

• AS: disclose the name, description, proportion of ownership interest in JVs/associates, contingent liabilities, commitments, and aggregate amounts of assets, liabilities, income and expenses for jointly controlled entities.
• Ind AS 112 (Disclosure of Interests in Other Entities): significantly expanded disclosures—nature of interests, risks, summarised financial information for material associates/JVs, restrictions on transfer of funds, contingent liabilities, and commitments.
• Related party considerations (Ind AS 24/AS 18): transactions with JVs/associates are related party transactions; pricing, credit terms, and guarantees must be disclosed.

15. Financial Instruments Overlay and Hedging

• Many JV/associate arrangements include shareholder loans, preference shares, and guarantees. Under Ind AS 109, classification (amortised cost vs FVTPL vs FVOCI) depends on the SPPI test and business model. Preference shares with discretionary dividends may be classified as equity in the investee but as a financial asset at the investor.
  • Hedging: if the investor hedges its net investment in a foreign associate/JV, hedge accounting under Ind AS 109 can apply with effective portions recognised in OCI and reclassified on disposal.

16. Tax and Deferred Tax Considerations

• Ind AS 12 requires recognition of deferred tax on temporary differences arising from undistributed profits of associates and JVs unless the investor controls the timing of reversal and it is probable the difference will not reverse in the foreseeable future.
• Intra-group transactions: elimination adjustments can create basis differences for tax—track carefully. MAT/AMT considerations and dividend distribution tax changes historically affect cash flows rather than accounting under Ind AS (post-2020 regime).

17. Regulatory and Sector Nuances (Banking and NBFCs)

• Strategic stakes in insurance, asset management, fintech platforms and infrastructure invITs are common. Where significant influence exists, equity method applies notwithstanding sectoral limits on voting or ownership—they do not override accounting assessment.
• RBI/SEBI guidelines may require prudential filters for unrealised gains and specify capital deduction for certain investments; these are regulatory, not accounting, but relevant for MD&A and risk disclosures.

18. Implementation Checklist for CFOs and Controllers

1) Map all investees and arrangements; identify governance rights, veto matters, and substantive potential voting rights.

2) Determine whether rights are to assets/liabilities (joint operation) or to net assets (joint venture).

3) For associates/JVs under Ind AS: perform purchase price allocation to identify FV uplifts and finite-lived intangibles.

4) Build robust elimination processes for upstream/downstream transactions—especially transfer pricing and inventory/PP&E margins.

5) Track long-term interests (quasi-equity) and integrate ECL models for loans to JVs/associates.

6) Establish impairment triggers and monitoring (cash burn, covenant breaches, adverse tech changes).

7) Align disclosures under Ind AS 112; prepare proportionate analytics for investors even if equity method is applied.

8) Educate audit committee on implications of losses exceeding carrying amount and suspension rules.

19. Extended Worked Example — End-to-End JV Life Cycle (Ind AS)

Facts: EnergyCo (60%) and TechCo (40%) form GreenHydrogen JV Ltd to develop electrolyser technology in India. Separate vehicle; joint control via equal board and unanimous consent on relevant activities; therefore, a Joint Venture. EnergyCo invests ₹600 crore cash; TechCo contributes IP valued at ₹400 crore (non-cash). A shareholder loan of ₹300 crore at 4% p.a. is provided by EnergyCo; market rate is 9%. JV incurs Year 1 loss of ₹300 crore; Year 2 loss of ₹200 crore; Year 3 profit of ₹150 crore. No dividends. Inventory purchases from EnergyCo include a 10% margin; at each year-end, unsold inventory at JV includes ₹50 crore of such purchases.

Step 1 — Initial recognition (EnergyCo):

• Investment recognised at cost: cash ₹600 crore.
• Shareholder loan at fair value using EIR (discount to market): compute PV using 9%; the below-market element (benefit to JV) recognised as a deemed capital contribution increasing the net investment.
• Classify the JV as a joint venture; apply equity method under Ind AS 28. The long-term loan forms part of net investment for loss allocation.

Step 2 — Year 1 loss allocation:

• Investor’s share of loss = 60% × 300 = 180.
• Eliminate downstream unrealised profit: inventory contains ₹50 crore of purchases with 10% margin → unrealised profit = 50 × 10/110 ≈ 4.545. Eliminate 100% × investor’s interest (60%) = 2.727 against share of profit.
• Apply loss against investment carrying amount first, then against the long-term loan balance (net of ECL).

Step 3 — Year 2 loss allocation:

• Similar mechanics; consider whether the ECL on the shareholder loan increases to lifetime ECL. Losses may fully deplete the investment carrying amount and partially the loan balance.

Step 4 — Year 3 profit:

• Resume recognising share of profits only after unrecognised losses are recovered. Also reverse elimination related to depreciation/consumption of inventory margins.

Step 5 — Disclosures:

Provide summarised financial information of the JV (assets, liabilities, revenue, profit/loss), nature of risks (technology, regulatory), and commitments (CAPEX, guarantees).

20. Transition and Comparative Analytics

• Entities migrating from AS 27 proportionate consolidation to Ind AS equity method for JVs will see EBITDA, gross assets and gross debt reduce on the face of financials. Communicate non-GAAP proportionate measures to stakeholders for continuity, ensuring compliance with SEBI’s presentation norms. Recalibrate banking covenants that were originally set on proportionate metrics.
• Equity method volatility may increase due to fair value amortisation of FV uplifts and impairment reviews—prepare investors for this pattern in earnings calls.

21. Frequently Observed Pitfalls

• Treating all separate-vehicle arrangements as JVs under Ind AS 111 without analysing contractual rights—some are joint operations.
• Ignoring substantive potential voting rights (options) when assessing significant influence under Ind AS 28.
• Failing to eliminate margins on downstream inventory/PP&E sales, leading to overstated profits.
• Not integrating ECL with the equity method when long-term interests exist.
• Carrying associates/JVs at cost in separate financial statements without considering Ind AS 109 option or disclosure implications.
• Incomplete Ind AS 112 disclosures—particularly summarised financial information of material JVs/associates and restrictions on fund transfers.

22. Conclusion

Accounting for joint ventures and other ownership interests sits at the intersection of governance, contracts, and financial instruments. AS 23 and AS 27 provide a pragmatic framework still relevant for many entities, whereas Ind AS 28 and Ind AS 111 bring IFRS-converged discipline with sharper distinctions between joint operations and joint ventures, purchase price allocation overlays, and comprehensive disclosures. For preparers, the key is disciplined classification, robust equity method mechanics (including loss recognition and elimination of unrealised profits), integration of ECL for quasi-equity exposures, and transparent narrative to investors and lenders.

Exhibit: Ind AS 28 Equity Method Carrying Amount Rollforward (Illustration 1)