[Opinion] Accounting for an Investment in an AOP under Ind AS 111, 28 and 110

Anand Agrawal – [2025] 180 taxmann.com 460 (Article)

1. Introduction

Joint arrangements in India take many shapes. One of the most common among professional service firms, construction companies and EPC contractors is an Association of Persons (AOP). While the structure is simple from an operational standpoint, the accounting can be unclear.

Is it an associate? A joint operation? A joint venture? Does Ind AS 110 require consolidation?

This case study breaks down these questions using a real-world style scenario and links every conclusion to the exact paragraphs of the standards.

2. The Story Behind the Transaction

Alpha Pvt Ltd has built a strong reputation in project advisory work. To win a large government contract, the company teams up with two specialised entities. Instead of creating a new company or LLP, the parties choose to form an AOP, as the project is temporary and structured around a specific scope of work.

The AOP agreement sets out the following:

• All decisions that affect project execution require the consent of all three members.
• The AOP functions through a separate structure created for this project.
• Assets used in the project remain in the name of the AOP, not the members individually.
• Profit sharing is proportionate, based on agreed ratios.
• No member has unilateral authority to direct the relevant activities.
• Each member participates only in the net results of the AOP.

After the project begins, Alpha Pvt Ltd’s finance team must determine how this investment should appear in the standalone and consolidated financial statements.

3. Understanding the Standards That Apply

Three standards are relevant:

• Ind AS 111 – Joint Arrangements
• Ind AS 28 – Investments in Associates and Joint Ventures
• Ind AS 110 – Consolidated Financial Statements (only if the arrangement results in control)
• Ind AS 27 – Separate Financial Statements (for SFS treatment)

The starting point is Ind AS 111, which defines how to classify the arrangement. The classification then drives the accounting under Ind AS 28, 110 and 27.

3. Relevant Extracts from Ind AS

3.1 Joint Arrangement Definition

Ind AS 111 – Para 4

“A joint arrangement is an arrangement of which two or more parties have joint control.”

3.2 Meaning of Joint Control

Ind AS 111 – Para 7

“Joint control is the contractually agreed sharing of control… decisions about the relevant activities require unanimous consent.”

3.3 Classification Requirement

Ind AS 111 – Para 14

“An entity shall determine the type of joint arrangement… based on the rights and obligations of the parties.”

3.4 Joint Operation Definition

Ind AS 111 – Para 15

A joint operation exists when parties “have rights to the assets, and obligations for the liabilities.”

3.5 Joint Venture Definition

Ind AS 111 – Para 16

A joint venture exists when parties “have rights to the net assets.”

3.6 Separate Vehicle Guidance

Ind AS 111 – Para B21

When the arrangement is through a separate vehicle, the assessment must consider whether parties have rights to assets or only to net assets.

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