Contractors often pursue large projects through joint ventures. For an unincorporated construction JV, US GAAP permits proportionate consolidation: including your share of each of the JV’s assets, liabilities, revenue and costs line by line (ASC 910-810-45-1). Alternatively, the equity method records one investment line on the balance sheet and your share of the JV’s earnings as one line on the income statement. A JV you control may need full consolidation with a non-controlling interest.
Why it matters
The method changes reported revenue and backlog dramatically, which matters for bonding and covenants, even though net income is the same.
Worked example
Your share of a JV is 60%. The JV reports revenue $1,000,000 and cost $900,000. Proportionate consolidation adds $600,000 of revenue and $540,000 of cost; the equity method posts Dr Investment in Joint Ventures $60,000 / Cr equity in JV earnings $60,000 (illustrative).
Common mistakes
- Mixing methods across JVs without disclosing it.
- Forgetting to eliminate your own billings to the JV.
How os.construction handles it
In the accounting preview’s design, the JV method is a setting on the JV entity and appears on each consolidation run. JV support is Planned. See Financial reports.