Accounting for Joint Ventures under IFRS

Hard Intercorporate Investments Joint Ventures

XYZ Corporation and ABC Limited formed a joint venture, XYZ-ABC Joint Ventures, to develop a new technology product. XYZ Corporation owns 60% of the joint venture, while ABC Limited holds the remaining 40%. The joint venture is structured as a separate legal entity and operates independently of both parent companies. During its first year of operations, XYZ-ABC Joint Ventures generated revenues of $10 million and incurred expenses of $7 million. XYZ Corporation, following International Financial Reporting Standards (IFRS), must decide how to report its investment in the joint venture in its consolidated financial statements.

What is the appropriate method for XYZ Corporation to account for its investment in the XYZ-ABC Joint Ventures?

Using the equity method, recognizing its share of profits and losses in the net income.

Using the cost method, reporting it as an asset on the balance sheet at historical cost.

Consolidating the joint venture's financial statements with its own, given that it holds 60%.

Hint

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