Wiley GAAP 2008

Joint Ventures and Shared Contracts

Especially large or risky contracts are sometimes shared by more than one contractor. When the owner of the contract requests competitive bids, many contractors will form syndicates or joint ventures in order to bid on and successfully obtain a contract that each contractor individually could not perform.

When this occurs, a separate set of accounting records is maintained for the joint venture. If the percentages of interest for each of the participants are identical in more than one contract, the joint venture might keep its records in the same manner as it would if it was simply another construction company. Usually, the joint venture is for a single contract and ends upon completion of that contract.

A joint venture is a type of partnership, organized for a limited purpose. An agreement of the parties and the terms of the contract successfully bid upon will determine the nature of the accounting records. Income statements are usually cumulative statements showing totals from date of contract inception until reporting date. Each participant records its share of the amount from the venture's income statement less its previously recorded portion of the venture's income as a single line item similar to the equity method for investments. Similarly, balance sheets of each participant present a single line asset balance, “investment in and advances to joint ventures.” In most cases, footnote disclosure is similar to the equity method and presents ...