Overview

What you’ll learn:

• Where JV transactions are booked at legal entity level versus group reporting level
• Why the JV and the developer always book 100% of invoices and revenue
• When and where eliminations are performed
• How ownership percentage drives partial eliminations
• Why eliminations always flow through Investment in Joint Venture

This episode focuses on execution and discipline, not theory.

Best for:

• Offshore finance teams posting JV month-end journals
• Team members supporting group consolidation and eliminations
• Finance staff confused about why revenue is booked and then reversed
• Anyone involved in JV fee recharges, overhead allocations, or cost capitalisation

Strong understanding of Episodes 2 and 3 is recommended.

• Estimated time: 6 mins

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Chapter 4 JV booking Mechanics and Eliminations (AASB 128)

Context: This note details the practical accounting mechanics for transactions between an investor (Developer) and an equity-accounted investee (Joint Venture/JV). It addresses the requirement to eliminate intra-entity profits under AASB 128 Investments in Associates and Joint Ventures.

1. Fundamental Principle: The Entity vs. The Group

A critical distinction in joint venture accounting is the difference between the legal entity general ledgers and the consolidated group financial statements.

• Legal Entity Level (Standalone): The Developer and the JV are separate legal entities. Transactions between them (e.g., services provided, fees charged) are legally binding and are recorded at 100% of the transaction value in the individual general ledgers of both parties.
• Group Reporting Level (Equity Accounting): The Developer holds an economic interest in the JV. Under AASB 128, the Developer cannot recognize profit on a transaction with the JV to the extent of its own ownership interest. This portion is considered "intra-entity" and must be eliminated to avoid double-counting or recognizing unrealized internal profit,.

1. Transaction Booking Mechanics

Scenario: Developer owns 50% of a JV. Developer charges the JV a $1,000 Development Management (DM) Fee.

Step A: Recording in the Joint Venture (Investee)

The JV recognizes the transaction based on the invoice received. It records the full cost as incurred.

• Debit: Development Management Expense (or WIP/Inventory if capitalized) $1,000
• Credit: Trade Payable / Cash $1,000
• Note: The JV does not perform any eliminations. It treats the Developer as a third-party supplier.

Step B: Recording in the Developer (Investor)

The Developer recognizes the revenue earned from providing the service.

• Debit: Trade Receivable / Cash $1,000
• Credit: Development Management Revenue $1,000
• Note: At this stage, the Developer’s P&L shows $1,000 of profit.

1. Group-Level Eliminations (AASB 128)

Under AASB 128, gains and losses resulting from "upstream" (JV to Developer) and "downstream" (Developer to JV) transactions are recognized in the Developer's financial statements only to the extent of unrelated investors' interests.

Consequently, the Developer must eliminate the profit portion corresponding to its own ownership interest.

Step C: The Elimination Entry (Group Layer Only)

This journal entry is posted in the consolidation/reporting layer, not in the detailed general ledger of the Developer or the JV.

Calculation:

• Total Revenue: $1,000
• Developer’s Share (50%): $500 (Internal Profit - Eliminate)
• External Partner’s Share (50%): $500 (Realized Profit - Recognize)

Journal Entry:

• Debit: Revenue $500 (Reduces reported top-line revenue)
• Credit: Investment in Joint Venture $500 (Reduces the carrying amount of the asset)

Commercial Logic:

• If the JV expensed the fee: The Developer’s share of the JV’s profit is reduced by $500 (50% of the $1,000 expense). This naturally offsets the revenue elimination, resulting in net profit of $500 (the fee charged to the external partner).
• If the JV capitalized the fee (Inventory/WIP): The expense has not yet hit the JV's P&L. Without elimination, the Developer would book $1,000 immediate profit. However, 50% of that profit is essentially the Developer charging itself to build an asset it partially owns. The elimination defers this $500 profit until the JV sells the asset to a third party.

1. Treatment of Overhead Recharges

Developers often recharge internal project costs (staff time, site support, overheads) to the JV. The accounting mechanics follow the same logic as DM fees.

Scenario: Developer incurs $1,000 of payroll costs directly related to the JV project and recharges this to the JV. Ownership is 50%.

1. Developer incurs cost: Dr Expense $1,000 / Cr Cash $1,000.
2. Developer recharges JV: Dr Receivable $1,000 / Cr Overhead Recovery Revenue (or Cost recovery) $1,000.
3. JV Capitalizes: Dr WIP (Inventory) $1,000 / Cr Payable $1,000.
4. Group Elimination:

◦ The Developer must eliminate profit on the recharge to the extent of its ownership.

◦ Debit: Overhead Recovery Revenue $500

◦ Credit: Investment in Joint Venture $500

1. Summary of Key Rules
2. Booking Basis: The JV entity and Developer entity always book transactions at 100% of the contract value in their respective GLs.
3. Elimination Basis: Eliminations under equity accounting are proportionate to ownership interest (e.g., 50%), unlike consolidation where eliminations are 100%,.
4. Location of Entry: Elimination journals are recorded in the Group consolidation layer, affecting the "Investment in JV" balance sheet line and the relevant P&L revenue/expense line.
5. Realization: The eliminated profit is eventually recognized when the underlying asset (e.g., the apartment unit) is sold by the JV to an independent third party.

Key Takeaways

• Legal entity books and group reporting books are not the same
• The JV and the developer always book 100% — never net at source
• Eliminations are posted only at group level, never in legal entities
• Only the developer’s ownership share of fees is eliminated
• All JV eliminations flow through Investment in Joint Venture

Common Mistakes / Watch-outs

• Posting eliminations in the JV or developer legal entity
• Netting revenue or costs before group reporting
• Eliminating 100% of the fee instead of the ownership portion
• Forgetting to eliminate internal overhead recharges
• Reconciling only P&L and ignoring the Investment balance movement

🧠 Month-end reality check

If your eliminations feel confusing, ask one simple question:

“Is this a legal entity entry, or a group reporting adjustment?”

Most JV errors come from answering that question incorrectly.

Quick Links

• Next episode →Episode 5 – Fees, Waterfalls & Uneven Returns
• Back to hub →Episode 3 – Equity Accounting Explained