Joint ventures can be organized in the following forms:
· Partnerships
· Corporations
· Other Legal forms i.e. Unincorporated associations
Under IFRS Both Proportionate consolidation method and Equity method can be used. However, Proportionate consolidation method is preferred. In Proportionate Consolidation Method Venturer’s share of the assets, liabilities, income and expenses of the Joint venture is combined on a line-by-line basis with similar items on the venturer’s financial statements & No Minority interest is necessary to be reported.
Under U.S. GAAP · Only Equity method is allowed to use. Proportionate consolidation method can be used
only for unincorporated entities operating in certain industries.
Relative to Proportionate consolidation method, Equity Method results in:
· Net Profit Margin being high
· ROA being high
· D/E Ratio being low
· Total income and total net assets of the investor are identical under both Equity and Proportionate consolidation method.
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