Is any JV invt (whether < 20% or 20 - 50%) an off-BS finance ?

k.sankar.ra
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Is any JV invt (whether < 20% or 20 - 50%) an off-BS finance ?

Postby k.sankar.ra » Sun Aug 07, 2016 3:39 am

In page A-64 of Becker's CMA Part I Study Notes, under item (4) - JVs or R&D Activities of Off-Balance-Sheet Financing,
it is stated that a company can set up JVs for venturing into new production lines or service areas
WITHOUT disclosing the associated costs / liabilities on its balance sheet.

a) If the company's interest in JV is < 20% of its voting stock,
then cost method of recording investment will apply
under the Discussion paragraph 6(a) of APB Opinion 18, and
b) if the company's interest in JV is > 20% but not > 50% of its voting stock,
then equity method of recording investment will apply
under the Opinion paragraphs 16 & 17(a) of APB Opinion 18,
will apply to the related investments.
Under both situations, investment in JV will be reflected in the investor company's balance sheet,
although the related JV operating liabilities will be reflected only in the JV separate entity's balance sheet only.

Since JV investment costs are reflected in the investor company's balance sheet,
can it entirely be said to be off-balance-sheet-financing,
simply because JV liabilities are not reflected ?

Can you clarify this please ?

Regards
Ra K Sankar

Comparative off-balance-sheet financing instances

1) For example, in operating leases, both the operating leased assets and its accumulated depreciation liabilities
are NOT reflected in the balance sheet of the operating lessee utilizing the operating leased asset.

2) Similarly, in the case of sale of receivables to a factor, the receivables sold are not reflected in the seller's balance sheet,
ALTHOUGH relatively negligible amounts of,-
a) retention receivable from factor and
b) bad debt recourse obligation payable to factor,
are STILL reflected in the sellers' balance sheet.

3) Likewise, in the case of guarantees for a subsidiary or letter of credit issued to a subidiary
need NOT be recorded as a liability in the guarantor holding company's balance sheet,
on account of the EXEMPTION granted under ASC 460-10-25-1(g).

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