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Create a 6 page essay paper that discusses Financial Accouting Theory coursework.permits the accounting treat of investments in joint ventures in either of two methods, namely, the proportionate conso
Create a 6 page essay paper that discusses Financial Accouting Theory coursework.
permits the accounting treat of investments in joint ventures in either of two methods, namely, the proportionate consolidation method or the equity method. It is matter of great controversy and discussion as which method is most suitable for venturer to recognize its joint venture interest in its financial statements.
An effort has been made in this write up to suggest the most suitable method of accounting for the venturer.
For applying proportionate consolidation method the consolidated financial statements of jointly controlled entity are used. The consolidated balance sheet of the venturer includes its share of assets that it controls jointly as well its share of liabilities for which it is jointly responsible. Similarly, the profit and loss account of the venturer includes its shares of income and expenses of the jointly controlled entity.
First, Share in each asset, liability, income, and expenses of the venturer into the joint venture statements may be shown as separate line item under the asset, liability, income, and expenditure of similar nomenclature in the consolidated financial statements of the venturer, or the second, where the venturer may combine its share in each asset, liability, income, and expenditure into joint venture financial statement with asset, liability, income, and expenditure of similar nomenclature in the consolidated statements of venturer.
Under equity method initially the investment into the joint venture is recoded at cost. The venturer will recognize its share of joint venture income as an increase in investment and a corresponding increase in the net income.
Share of income or part of investments actually withdrawn or taken from joint venture business is not shown as income by the venturer in its statements. Instead those are reported as reduction in the joint venture investment account. Market values of the investments into the joint venture are not considered. The transactions are recorded at cost only.
When an
