The murky world of JV accounting

Multiple-choice questions. In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please reread the article before attempting the questions again.

How are joint ventures and associates presented under the equity method?

Fully consolidated line by line

As a single line representing share of profit or loss

Excluded entirely from financial statements

Only disclosed in notes

What is a key criticism of recognising the share of profit under the equity method?

It overstates liabilities

It ignores taxation

Profits are recognised even if no dividend is received

It double-counts revenue

What is another criticism of the equity method in the statement of profit or loss?

It eliminates cashflow reporting

It misclassifies assets

It inflates operating margins

It does not show revenues and expenses line by line

How is an investment in a joint venture shown in the statement of financial position?

As separate assets and liabilities

As one line representing the investment value

As revenue and expenses

Not shown at all

For an investment to be classified as an associate, what is the level of influence required?

Significant influence

Control

Joint control

Majority ownership

For an investment to be classified as a joint venture, what is the level of influence required?

Control

Significant influence

Joint control

Majority ownership

What happens to operating margins when a loss-making joint venture is consolidated?

They decrease

They remain unchanged

They increase significantly

They become irrelevant

What accounting change occurs when a joint venture becomes a subsidiary?

It is removed from the financial statements

It continues under equity method

It is consolidated line by line

It is only disclosed in notes

What additional accounting effect can occur on transition from joint venture to subsidiary?

Elimination of liabilities

Revenue deferral

Fair value gain or impairment

All the other answers are correct

Where are remeasurement gains or losses shown on moving from a joint venture to a subsidiary?

In the statement of changes in equity

In an investment reserve

In the statement of profit or loss

In other comprehensive income

1 unit