The consolidation of the accounts of joint ventures (JVs). This involves the combination of an investor’s share of a venture’s assets and liabilities on a pro-rata basis in each relevant (corresponding) line item of the investor’s balance sheet, and the results of a venture’s operations on a pro-rata basis in relevant (corresponding) line item in its income statement (i.e, that of the investor). In other words, assets and liabilities are transferred to the parent’s balance sheet in proportion to the parent’s interest (holdings) in the venture. Similarly, the ventures’ income and expenses are added to the parent’s on the consolidated income statement in proportion to its share in the venture.
An entity can select an accounting policy to account for its interests in joint ventures using one of three general methods: 1) proportional consolidation method, 2) equity method, and 3) cost method.
The proportional consolidation is also known as proportionate consolidation.
