Joint venture
This query is : Resolved
Guest
Guest
(Querist)
08 November 2012
X, Y, Z are 3 existing companies. The said companies decide to carry a joint development project of constructing a building.
Instead of forming a separate entity (joint venture) for the proposed project, it was decided Z will carry out the entire operation. Accordingly, X gave Z 3cr INR and Y gave Z 1.2cr INR.
Both X and Y are showing the said amounts under Non - Current Investments(investment in joint venture with Z), while Z has shown the amounts received under the head current liabilities(Joint Venture a/c)
My question is:
1. is such type of venture allowed? Isn't there a need to form a separate entity for JV?
2. If it is allowed, how will be the sharing of income and expenses be done?
3. is the current disclosure by x and Y in their books right?
Instead of forming a separate entity (joint venture) for the proposed project, it was decided Z will carry out the entire operation. Accordingly, X gave Z 3cr INR and Y gave Z 1.2cr INR.
Both X and Y are showing the said amounts under Non - Current Investments(investment in joint venture with Z), while Z has shown the amounts received under the head current liabilities(Joint Venture a/c)
My question is:
1. is such type of venture allowed? Isn't there a need to form a separate entity for JV?
2. If it is allowed, how will be the sharing of income and expenses be done?
3. is the current disclosure by x and Y in their books right?
08 November 2012
Dear Richie
1. Forming a separate entity would be advantageous from legal, accounting and tax perspective though there is no such requirement if there is proper legal arrangement between the three companies.
2. The sharing of income and expenses needs to be properly captured in the legal agreement itself. Further, accounting needs to be separately done for the activity to provide better clarity.
3. All the three disclosures are incorrect. Since there is no separate JV, X and Y needs to show the amounts as long term loans and advances (unless shares in Z has been issued to X and Y). For Z also, the same would be a long term liability. The above classification will also be dependent upon the terms of the agreement between the parties involved.
1. Forming a separate entity would be advantageous from legal, accounting and tax perspective though there is no such requirement if there is proper legal arrangement between the three companies.
2. The sharing of income and expenses needs to be properly captured in the legal agreement itself. Further, accounting needs to be separately done for the activity to provide better clarity.
3. All the three disclosures are incorrect. Since there is no separate JV, X and Y needs to show the amounts as long term loans and advances (unless shares in Z has been issued to X and Y). For Z also, the same would be a long term liability. The above classification will also be dependent upon the terms of the agreement between the parties involved.
Message likes :
1 times
Guest
Guest
(Querist)
08 November 2012
Thank you Mr. Vivek for the reply....
I am not clear on the part that if the amounts will be shown as loans and advances in the books of X and Y, how will be the sharing in profits of the project done?
I am not clear on the part that if the amounts will be shown as loans and advances in the books of X and Y, how will be the sharing in profits of the project done?
09 November 2012
Dear Richie
As regards the profit sharing, it is a purely business arrangement and nothing to do with accouting. The Legal Advisor would have to take care of the same. Or else, the JV partner will have to decide.
As regards the disclosure, to show the same as investment, X & Y need to be shareholders either in Z or in the new JV entity.
As regards the profit sharing, it is a purely business arrangement and nothing to do with accouting. The Legal Advisor would have to take care of the same. Or else, the JV partner will have to decide.
As regards the disclosure, to show the same as investment, X & Y need to be shareholders either in Z or in the new JV entity.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Is this income indian or foreign income?
- REGARDING GST ON COMMERICIAL PROPERTY
- 15ca /15cb whose income tax login? remitter or nri seller's login?
- GST on export of services and Input Credit
- TDS U/S. 194NF
- ITC temporary reversal and reclaim
- RCM applicability on Rent Paid by Registered Person to Unregistered Landlord for Residental Building
- Regarding Documentation & Compliances for Opening of Unit of Pvt Ltd.
- Applicable TDS rate for sale of property in Nov 2024
- Should I report my US salary for January, February, March in Schedule FA?
- Can a partnership firm become partner in a LLP ?
- Quiery in relation to GST liability in case of an advocate who has obtained GST registration.
- LAST YEAR 2022-23 ITC IN NEXT YEAR 2023-24 REPORITNG IN GSTR-9
- MIS MATCH OF INVOICE NUMBER
- IGST Credit-Show cause notice issued-confusion
- TDS on purchase of value vouchers for employees ?
- Issue of gst e invoice
- How to adjusted advances given or receipt
- Foreign vendor without PAN unable to to register due to non receipt of OTP on foreign number ?
- 133(6) DIN INVALID format error - ->WHERE TO REPLY 133(6) notice?
Trending Online Classes
CAclubindia
