A Ltd. and B Ltd. are companies registered under the Companies Act, 2013. A Ltd. is an Ind AS compliant entity and follows year ended March as its…

(a) As per the terms and conditions of the partnership deed, the consent of both the partners shall be required for taking decisions on any matter which may affect the returns of the business. Here, both the partners have joint control over the business of the partnership firm as defined under Ind AS 111. Therefore, we can conclude that the arrangement between A Ltd. and B Ltd. is a joint arrangement under Ind AS 111. Classification of the joint arrangement for the year ended 31st March, 20X2 Para B15 of Ind AS 111 states that the classification of joint arrangements requires the parties to assess their rights and obligations arising from the arrangement. When making that assessment, an entity shall consider the following: (a) the structure of the joint arrangement. (b) when the joint arrangement is structured through a separate vehicle: (i) the legal form of the separate vehicle; (ii) the terms of the contractual arrangement; and (iii) when relevant, other facts and circumstances. Para B24 states that the assessment of the rights and obligations conferred upon the parties by the legal form of the separate vehicle is sufficient to conclude that the arrangement is a joint operation only if the parties conduct the joint arrangement in a separate vehicle whose legal form does not confer separation between the parties and the separate vehicle (ie the assets and liabilities held in the separate vehicle are the parties' assets and liabilities). As per para 15 of Ind AS 111, a joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators. Accordingly, the joint arrangement is carried out through a separate vehicle M/s. Star Hotel whose legal form does not confer separation between the parties and the separate vehicle (ie the assets and liabilities held in vehicle M/s. Star Hotel are the parties' assets and liabilities ie of A Ltd. and B Ltd.). This is reinforced by the terms agreed by the parties in their contractual arrangement, which state that A Ltd. and B Ltd. have rights to the assets, and obligations for the liabilities relating to the arrangement that is conducted through vehicle M/s. Star Hotel. [As per para B25 and B28 of Ind AS 111]. Hence, here the joint arrangement is a joint operation. Recognition in the financial statements of A Ltd. for the year ended 31st March, 20X2 A Ltd. in its financial statements for the year ended 31st March, 20X2 will recognise its share of the assets and its share of any liabilities resulting from the arrangement (eg- accounts payable to third parties) on the basis of its agreed participation share. It will also recognise its share of the revenue and expenses resulting from the hospitality services provided through M/s Star Hotel. First floor that is controlled by A Ltd. shall be accounted for by A Ltd. in its financial statements. For the two floors (Ground Floor and Third Floor) that are jointly controlled by A Ltd. and B Ltd., as per the contractual arrangement, both A Ltd. and B Ltd. will jointly and equally own the legal and beneficial ownership of assets and related liabilities. Thus, A Ltd. will recognise its 50% share of the revenue and expenses resulting from these floors. With respect to second floor, A Ltd. should not account for any items of assets and liabilities, revenue and expenses in its financial statements. The assets, liabilities, revenue and expenses should be recognised on a line-by-line basis based on nature and classification of the respective items and according to the principles of recognition and measurement prescribed under the respective Ind AS applicable to such items. Reclassification of the joint arrangement for the year ended 31st March, 20X3 As per para B23 of Ind AS 111, the joint arrangement is carried out through a separate vehicle whose legal form causes the separate vehicle to be considered in its own right (ie the assets and liabilities held in the separate vehicle are the assets and liabilities of the separate vehicle and not the assets and liabilities of the parties). Since the terms of the contractual arrangement in the formation of company Star Hotel Pvt. Ltd. does not specify the parties have rights to the assets, or obligations for the liabilities, relating to the arrangement. Instead, the terms of the contractual arrangement establish that the parties have rights to the net assets of Star Hotel Pvt. Ltd. The legal form of the company confers separation between the shareholders and the company. Further, as per the shareholders' agreement, the individual assets and liabilities of the business are legally beneficial to the company rather than the shareholders. Upon liquidation of the company, its net assets, after repayment of all its liabilities, shall be distributed to the shareholders in the proportion of share capital held by them. It implies that the shareholders have rights to the assets of the company. This is a key characteristic of a joint venture. The terms and conditions of the shareholders' agreement do not modify or reverse the rights and obligations conferred by the legal form of the company. Therefore, on the basis of the description of terms and conditions of the shareholders' agreement, there are no other facts and circumstances that indicate that the parties have rights to substantially all the economic benefits of the assets relating to the arrangement, and that the parties have an obligation for the liabilities relating to the arrangement. Hence, the joint arrangement shall be reclassified from a joint operation to a joint venture in the financial statements of A Ltd. for the financial year ended 31st March, 20X3. Recognition in the consolidated financial statements of A Ltd. for the year ended 31st March, 20X3 As per Para 24 of Ind AS 111, a joint venturer shall recognise its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with Ind AS 28 'Investments in Associates and Joint Ventures' unless the entity is exempted from applying the equity method as specified in that standard. Accordingly, A Ltd. shall recognise its right to the net assets of Star Hotel Pvt. Ltd. as investment and account for it using the equity method assuming that the right to sell the shares to B Ltd. is not substantive and will not have any implication on the assessment as it will not alter the joint arrangement. Note: Right to sell 50% shares by A Ltd. has been ignored, since the right to exercise the option rest with A Ltd. and not B Ltd. Hence, B Ltd. is under obligation to buy but do not have potential voting rights.