Support Ltd's Investment in Always There: Joint Venture Accounting and Impact on Consolidated Financial Statements

(a) The most appropriate classification of the investment in Always There in the Support Ltd's consolidated financial statements at 30 June 2023 is equity investment in a joint venture. According to AASB 11 Joint Arrangements, a joint venture is defined as a contractual agreement where two or more parties have joint control over an economic activity. Always There meets the definition of a joint venture as it was established through a contractual agreement between Support Ltd and Equal Bank Ltd, with each party holding an equal number of shares and having equal representation on the Board of Directors. Additionally, both parties have the ability to participate in the decision-making process and share the risks and rewards of the joint venture.

AASB 128 Investments in Associates and Joint Ventures requires that joint ventures be accounted for using the equity method. This method requires that the investment be initially recognized at cost, which is the consideration paid for the shares. Subsequently, the investment is adjusted for the investor's share of the joint venture's profit or loss and other comprehensive income, as well as dividends received. The investor's share of the joint venture's assets and liabilities are also recorded on the balance sheet.

One item of additional information that would further develop the argument for the classification of the investment in Always There as a joint venture is the fact that Always There's constitution states that it retains each year’s funding surplus and cannot make an annual distribution to either Support Ltd or Equal Bank Ltd. This indicates that Always There is not a subsidiary of either Support Ltd or Equal Bank Ltd, as there is no ability for the parent entities to receive dividends or other distributions from the joint venture.

(b) The subsequent accounting treatment in Support Ltd’s consolidated financial statements for the investment in Always There would involve recognizing the investment at cost and adjusting it for the investor's share of the joint venture's profit or loss and other comprehensive income, as well as dividends received. In the projected operating surplus/deficit budget for the year ended 30 June 2023, Always There is expected to have a projected operating deficit of $160,760. This would result in a decrease in Support Ltd's share of the joint venture's net assets and an increase in the share of joint venture losses in the income statement.

As a supporting example, the impact on the specific account balances in the Support Ltd consolidated financial statements at 30 June 2023 would be as follows:

• Investment in joint venture: The initial investment in Always There by Support Ltd was $800,000, representing 50% of the total shares issued. As no other equity instruments have been issued by Always There, this investment would be recognized on the balance sheet at its cost of $800,000.
• Share of joint venture losses: As Always There is expected to have a projected operating deficit of $160,760, Support Ltd's share of this loss would be $80,380. This would be recorded as an expense in the income statement and reduce the value of the investment in Always There on the balance sheet.