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GAAP For Non-Profits › Interests in Joint Ventures

Interests in Joint Ventures

Joint ventures can be quite common among non-profit organizations, and are perhaps more prevalent than in the private sector. Quite often, two or more organizations will work together on a particular project or program. A joint venture arises where there is some contractual arrangement between two or more organizations that jointly control some activity. The arrangement does not have to be in writing, although it usually is. To be a joint venture, no organization can exercise unilateral control over the key operating, investing and financing activities of the venture, but rather each venturer must consent to these key decisions.

Accounting Treatment

The reporting organization should account for its interest in a joint venture with proportionate consolidation, as defined in section 3055 of the Handbook. Alternatively, the reporting organization can use the equity method of accounting and provide additional note disclosure. (4450.36)

Proportionate consolidation brings in the venturer’s share of the assets, liabilities, revenues and expenses of the venture and consolidates them into the venturer’s financial statements on a line by line basis, as shown in the following example.

  Venturer’s F/S F/S of Venture Consolidated 
Investment in Venture (50% share) 50   50
Other Assets 100 200 200
Liabilities 50 100 100
Net Assets 100 100 150
Revenues 100 100 150
Expenses 50 50 75

The equity method brings in only the venturer’s share of the net income of the venture, and does not include the revenues and expenses on a line by line basis. When this method is used, the following needs to be elsewhere disclosed:

Additional Disclosures

The method used to report the activities of the venture, and a description of the relationship with the joint venture should be provided (eg. that it is a joint venture and how the venture exists). (4450.37)