How are intercompany transactions handled in a joint venture?
A) They are ignored.
B) They are completely eliminated.
C) Only the venturer's share of any after tax profit is eliminated.
D) Intercompany profits are treated as an adjustment to the acquisition differential.

Question

Quizplus · Accepted Answer

Intercompany transactions in a joint venture are eliminated except for the venturer's share of any after-tax profit. This means that the profit earned by the joint venture before tax is reduced by the proportionate share of each venturer, but only the share of the non-controlling interest (i.e. the venturer's share) is eliminated. This ensures that the accounting for the joint venture accurately reflects the economic substance of the arrangement without double-counting profits or assets. Choice A is incorrect because intercompany transactions cannot be ignored, as they would lead to overstatement of assets and liabilities. Choice B is incorrect because completely eliminating intercompany transactions could result in the understatement of assets, liabilities, and revenue. Choice D is also incorrect because intercompany profits are not adjusted to acquisition differential but are eliminated.

How Are Intercompany Transactions Handled in a Joint Venture