ASC 323-970
Real Estate—General
323 Investments—Equity Method and Joint Ventures
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ASC 323-970 (also cited as 970-323) governs how an investor accounts for interests in real estate ventures—corporate joint ventures, general partnerships, limited partnerships, and undivided interests. The general rule is one-line equity method presentation for noncontrolling investors (pro rata consolidation is prohibited except under 810-10-45-14), consolidation principles if the investor controls the venture, and Topic 321 if the interest is so minor that the investor has virtually no influence. It also prescribes initial measurement of contributed cash or real estate (via Subtopic 610-20 / 360-10-40-3A through 40-3C), elimination of intra-entity profit, and rules for recognizing losses in excess of the investment.
Key points (7)
- Noncontrolling investors in real estate general partnerships, and generally limited partners, account for their investments under the equity method using Topic 323 as a guide (323-970-25-3; 25-6); an interest so minor that the investor has virtually no influence is accounted for under Topic 321 (323-970-25-6).
- The one-line equity method must be used in both the balance sheet and income statement; pro rata consolidation is not appropriate except in the limited circumstances in paragraph 810-10-45-14 (323-970-25-4), and undivided interests subject to joint control are presented like investments in noncontrolled partnerships (323-970-25-12).
- A controlling investor—including a limited partner controlling through kick-out rights under 810-10-15-8A—applies subsidiary/consolidation principles in Topic 810 rather than joint venture guidance (323-970-25-8; 25-10).
- Investors contributing cash record the investment at cash contributed (323-970-30-2); an investor contributing real estate records the investment at fair value when the real estate is derecognized, applying 360-10-40-3A through 40-3C and Subtopic 610-20, measuring the retained interest at fair value under 610-20-32-4 (323-970-30-3; 30-6).
- An investor may not record income for its equity in the venture's profit on a sale of real estate to that investor; that share reduces the carrying amount of the purchased real estate and is recognized as the asset is depreciated or sold to a third party (323-970-30-7), and intra-entity profit is eliminated in relation to the investor's noncontrolling interest, with full elimination if the investor controls the investee (323-970-35-14).
- Losses in excess of the investment (including loans and advances) must be recorded—and reported as a liability—if the investor is liable as guarantor or general partner or is otherwise committed to provide support, or when imminent return to profitable operations appears assured (323-970-35-3 through 35-6); if losses are not recognized, the equity method resumes only after subsequent income equals the unrecognized losses (323-970-35-7).
- Investors must absorb losses allocable to other investors when it is probable those investors cannot bear them, applying Subtopic 450-20 loss contingency principles (323-970-35-8; 35-10); profit and loss allocation ratios are ignored if cash and liquidating distributions are determined on another basis—substance governs (323-970-35-17).
For students. This subtopic is the classic exam trap for real estate partnerships: students often assume a limited partner or undivided-interest holder can report its pro rata share of assets and liabilities, but ASC 323-970-25-4 and 25-12 require one-line equity method presentation, and losses can exceed the investment (recorded as a liability) when the investor is a guarantor or general partner.
real estate ventureequity methodone-line presentationpro rata consolidationundivided interestslosses in excess of investmentintra-entity profit eliminationcontribution of real estate
Machine-generated study aid for ASC 323-970. Check the source paragraphs below.
323-970-00Status
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323-970-00-1
The following table identifies the changes made to this Subtopic.
323-970-05Overview and Background
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323-970-05-1
This Subtopic provides accounting guidance on various forms of real estate ownership. In addition it addresses investor accounting for certain transactions with a real estate venture.
323-970-05-2
Ownership of real estate or real estate development projects by two or more entities may take several forms. The most common forms are a corporate joint venture, a general partnership, a limited partnership, or an undivided interest.
323-970-05-3
In this Subtopic, the terms venture and real estate venture apply to all of these ownership arrangements described above. These forms of ownership differ in legal form and economic substance.
323-970-05-4
See Subtopic 323-740 for guidance on accounting for qualified affordable housing investments.
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
105-10-65-10See Subtopic 323-740 for guidance on the use of the proportional amortization method to investments made primarily for the purpose of receiving income tax credits and other income tax benefits. 323-970-05-5
The Acquisition, Development, and Construction Subsection of Section 310-10-15 addresses acquisition, development, and construction arrangements in which the lender participates in expected residual profit. The Acquisition, Development, and Construction Subsection of Section 310-10-25 provides criteria for distinguishing between such arrangements that shall be accounted for as loans or real estate joint ventures, and provides accounting guidance for circumstances in which such arrangements are required to be accounted for as real estate joint ventures.
323-970-15Scope and Scope Exceptions
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Overall Guidance
323-970-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 970-10-15, with specific entity exceptions noted below.
Entities
323-970-15-2
The guidance in this Subtopic does not apply to the following entities:
- aRegulated investment entities and other entities that are required to account for investments at fair value.
323-970-15-3
See Sections 946-10-15 and 946-323-15 for applicability to unincorporated joint ventures and non-regulated investment entities.
323-970-25Recognition
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General Partnerships
323-970-25-2
Paragraph 970-810-25-2 states that a noncontrolling investor in a general partnership shall account for its investment by the equity method and should be guided by the provisions of Topic 323.
323-970-25-3
Many provisions of Topic 323 are appropriate in accounting for investments in certain unincorporated entities. The principal difference, aside from income tax considerations, between corporate joint ventures and general partnerships is that the individual investors in general partnerships usually assume joint and several liability. The equity method, however, enables noncontrolling investors in general partnerships to reflect the underlying nature of their investments in those ventures as well as it does for investors in corporate joint ventures. Accordingly, investments in noncontrolled real estate general partnerships shall be accounted for and reported under the equity method.
323-970-25-4
An entity shall apply the one-line equity method of presentation in both the balance sheet and the statement of income. Pro rata consolidation is not appropriate except in the limited circumstances described in paragraph 810-10-45-14. Topic 323 shall be used as a guide in applying the equity method.
Limited Partnerships
323-970-25-5
For guidance on determining whether a general partner or a limited partner shall consolidate a limited partnership or apply the equity method of accounting to its interests in the limited partnership, see paragraph 970-810-25-3.
323-970-25-6
The equity method of accounting for investments in general partnerships is generally appropriate for accounting by limited partners for their investments in limited partnerships. A limited partner's interest may be so minor that the limited partner may have virtually no influence over partnership operating and financial policies. Such a limited partner is, in substance, in the same position with respect to the investment as an investor that owns a minor common stock interest in a corporation, and, accordingly, the limited partner should account for its investment in accordance with Topic 321.
323-970-25-8
If the substance of the partnership arrangement is such that the general partners are not in control of the major operating and financial policies of the partnership, a limited partner may be in control. An example could be a limited partner holding over 50 percent of the limited partnership's kick-out rights through voting interests in accordance with paragraph 810-10-15-8A. A controlling limited partner shall be guided in accounting for its investment by the principles for investments in subsidiaries in Topic 810 on consolidation. Noncontrolling limited partners shall account for their investments by the equity method and shall be guided by the provisions of Topic 323, as discussed in the guidance beginning in paragraph 970-323-25-5, or by the guidance in Topic 321.
Corporate Joint Ventures
323-970-25-9
Topic 323 provides the standards for use of the equity method for corporate joint ventures and includes guidance for applying that method in the financial statements of the investor. That Topic applies to corporate joint ventures created to own or operate real estate projects.
323-970-25-10
Accordingly, an investment in a corporate subsidiary that is a real estate venture shall be accounted for by the investor-parent using the principles applicable to investments in subsidiaries rather than those applicable to investments in corporate joint ventures.
Undivided Interests
323-970-25-12
If real property owned by undivided interests is subject to joint control by the owners, the investor-venturers shall not present their investments by accounting for their pro rata share of the assets, liabilities, revenues, and expenses of the ventures. Most real estate ventures with ownership in the form of undivided interests are subject to some level of joint control. Accordingly, such investments shall be presented in the same manner as investments in noncontrolled partnerships.
Acquisition, Development, and Construction Arrangements
323-970-25-13
See the Acquisition, Development, and Construction Subsection of Section 310-10-25 for a discussion of when acquisition, development, and construction arrangements are required to be accounted for as a real estate joint venture rather than a loan. In those circumstances, the Acquisition, Development, and Construction Subsection of Section 310-10-35, and the Acquisition, Development, and Construction Subsection of Section 310-10-40 provide further guidance for accounting for such arrangements.
323-970-30Initial Measurement
Source downloaded: .Record version 28a6194eb313. Effective date must be checked in the source.
Accounting by the Investor for Certain Transactions with a Real Estate Venture
323-970-30-1
The guidance in this Section applies to investments accounted for by the equity method.
323-970-30-2
If all investors contribute cash at the formation of the real estate venture, each investor shall record its investment at the amount of the cash contributed.
323-970-30-3
An investor that contributes real estate to the capital of a real estate venture generally should record its investment in the venture at fair value when the real estate is derecognized, regardless of whether the other investors contribute cash, property, or services. The transaction shall be accounted for in accordance with the guidance in paragraphs . Some transactions are sales of an ownership interest that result in an entity being an investor in a real estate venture. An example of such a transaction includes one in which investor A contributes real estate with a fair value of $2,000 to a venture and investor B contributes cash in the amount of $1,000. The real estate is not considered a business or nonprofit activity and, therefore, is within the scope of Subtopic 610-20 on gains and losses from the derecognition of nonfinancial assets. Investor A immediately withdraws the cash contributed by investor B and, following such contributions and withdrawals, each investor has a 50 percent interest in the venture (the only asset of which is the real estate). Assuming investor A does not have a controlling financial interest in the venture, investor A applies the guidance in paragraphs 610-20-25-5 and 610-20-25-7. When investor A meets the criteria to derecognize the property, investor A measures its retained ownership interest at fair value consistent with the guidance in paragraph 610-20-32-4 and includes that amount in the consideration used in calculating the gain or loss on derecognition of the property.
323-970-30-6
The contribution of real property or an intangible to a partnership or joint venture shall be accounted for in accordance with Subtopic 610-20. The contribution of services or real estate syndication activities in which the syndicators receive or retain partnership interests are accounted for in accordance with the guidance in Topic 606 on revenue from contracts with customers.
323-970-30-7
An investor shall not record as income its equity in the venture's profit from a sale of real estate to that investor; the investor's share of such profit shall be recorded as a reduction in the carrying amount of the purchased real estate and recognized as income on a pro rata basis as the real estate is depreciated or when it is sold to a third party. Similarly, if a venture performs services for an investor and the cost of those services is capitalized by the investor, the investor's share of the venture's profit in the transaction shall be recorded as a reduction in the carrying amount of the capitalized cost.
323-970-35Subsequent Measurement
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Applying the Equity Method
323-970-35-1
The guidance in this Section applies to investments accounted for by the equity method.
323-970-35-2
Investors shall record their share of the real estate venture's losses, determined in conformity with generally accepted accounting principles (GAAP), without regard to unrealized increases in the estimated fair value of the venture's assets.
323-970-35-3
An investor that is liable for the obligations of the venture or is otherwise committed to provide additional financial support to the venture shall record its equity in real estate venture losses in excess of its investment, including loans and advances.
323-970-35-4
The following are examples of such circumstances:
- a The investor has a legal obligation as a guarantor or general partner.
- b The investor has indicated a commitment, based on considerations such as business reputation, intra-entity relationships, or credit standing, to provide additional financial support. Such a commitment might be indicated by previous support provided by the investor or statements by the investor to other investors or third parties of the investor's intention to provide support.
323-970-35-5
An investor, though not liable or otherwise committed to provide additional financial support, shall provide for losses in excess of investment when the imminent return to profitable operations by the venture appears to be assured. For example, a material nonrecurring loss of an isolated nature, or start-up losses, may reduce an investment below zero though the underlying profitable pattern of an investee is unimpaired.
323-970-35-6
An investor in a real estate venture shall report its recorded share of losses in excess of its investment, including loans and advances, as a liability in its financial statements.
323-970-35-7
If an investor does not recognize venture losses in excess of its investment, loans, and advances and the venture subsequently reports net income, the investor shall resume applying the equity method only after its share of such net income equals the share of net losses not recognized during the period in which equity accounting was suspended.
323-970-35-8
If it is probable that one or more investors cannot bear their share of losses, the remaining investors shall record their proportionate shares of venture losses otherwise allocable to investors considered unable to bear their share of losses. This does not apply for real property jointly owned and operated as undivided interests in assets if the claims or liens of investors' creditors are limited to investors' respective interests in such property.
323-970-35-9
When the venture subsequently reports income, those remaining investors shall record their proportionate share of the venture's net income otherwise allocable to investors considered unable to bear their share of losses until such income equals the excess losses they previously recorded. An investor who is deemed by other investors to be unable to bear its share of losses shall continue to record its contractual share of losses unless it is relieved from the obligation to make payment by agreement or operation of law.
323-970-35-10
The accounting by an investor for losses otherwise allocable to other investors shall be governed by the provisions of Subtopic 450-20 relating to loss contingencies. Accordingly, the investor shall record a proportionate share of the losses otherwise allocable to other investors if it is probable that they will not bear their share. In this connection, each investor shall look primarily to the fair value of the other investors' interests in the venture and the extent to which the venture's debt is nonrecourse in evaluating their ability and willingness to bear their allocable share of losses. An investor may not be able to apply the general rule to an investment in an undivided interest because the extent to which the interests of other investors are encumbered by liens may not be known. However, there may be satisfactory alternative evidence of an ability and willingness of other investors to bear their allocable share of losses. Such evidence might be, for example, that those investors previously made loans or contributions to support cash deficits, possess satisfactory financial standing (as may be evidenced by satisfactory credit ratings), or have provided adequately collateralized guarantees.
323-970-35-11
See Section 323-10-35 for additional guidance regarding accounting by equity method investor for investee losses when the investor has both loans and equity interest.
323-970-35-12
A loss in value of an investment other than a temporary decline shall be recognized. Such a loss in value may be indicated, for example, by a decision by other investors to cease providing support or reduce their financial commitment to the venture.
323-970-35-13
If a transaction with a real estate venture confirms that there has been a loss in the value of the asset sold that is other than temporary and that has not been recognized previously, the loss shall be recognized on the books of the transferor.
323-970-35-14
Intra-entity profit shall be eliminated by the investor in relation to the investor's noncontrolling interest in the investee, unless one of the exceptions in paragraph 323-10-35-7 applies. An investor that controls the investee and enters into a transaction with the investee shall eliminate all of the interentity profit on assets remaining within the group. (See Subsection 323-30-35 for accounting guidance concerning partnership ownership interest.)
323-970-35-15
A sale of property in which the seller holds or acquires a noncontrolling interest in the buyer shall be evaluated in accordance with the guidance in paragraphs . No profit shall be recognized if the seller controls the buyer.
323-970-35-16
Venture agreements may designate different allocations among the investors for any of the following:
- a Profits and losses
- b Specified costs and expenses
- c Distributions of cash from operations
- d Distributions of cash proceeds from liquidation.
323-970-35-17
Such agreements may also provide for changes in the allocations at specified times or on the occurrence of specified events. Accounting by the investors for their equity in the venture's earnings under such agreements requires careful consideration of substance over form and consideration of underlying values as discussed in paragraph 970-323-35-10. To determine the investor's share of venture net income or loss, such agreements or arrangements shall be analyzed to determine how an increase or decrease in net assets of the venture (determined in conformity with GAAP) will affect cash payments to the investor over the life of the venture and on its liquidation. Specified profit and loss allocation ratios shall not be used to determine an investor's equity in venture earnings if the allocation of cash distributions and liquidating distributions are determined on some other basis. For example, if a venture agreement between two investors purports to allocate all depreciation expense to one investor and to allocate all other revenues and expenses equally, but further provides that irrespective of such allocations, distributions to the investors will be made simultaneously and divided equally between them, there is no substance to the purported allocation of depreciation expense.
323-970-35-18
See Section 323-30-25 for guidance concerning partnership profit recognition.
Accounting for Other Transactions with a Real Estate Venture
323-970-35-19
See the Acquisition, Development, and Construction Subsection of Section 310-10-35 for additional guidance concerning subsequent measurement of acquisition, development, and construction arrangements that are required to be accounted for as real estate joint ventures under that guidance.
323-970-35-20
In the real estate industry, the accounts of a venture may reflect accounting practices, such as those used to prepare tax basis data for investors, that vary from GAAP. If the financial statements of the investor are to be prepared in conformity with GAAP, such variances that are material shall be eliminated in applying the equity method.
323-970-35-21
See Section 323-30-35 regarding income tax to be provided on profits accrued by investor-partners and tax liabilities applicable to partnership interests.
323-970-35-22
Interest on loans and advances that are in substance capital contributions (for example, if all the investors are required to make loans and advances proportionate to their equity interests) shall be accounted for as distributions rather than as interest income by the investors.
323-970-40Derecognition
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Sale of an Investment in a Real Estate Venture
323-970-40-1
A sale of an investment in a consolidated real estate venture (including the sale of stock in a corporate real estate venture) shall be evaluated under the guidelines set forth in paragraphs . The sale of a noncontrolling investment in a real estate venture that is being accounted for in accordance with Topic 320 on investments—debt securities; Topic 321 on investments—equity securities; Topic 323 on investments—equity method and joint ventures; or Topic 325 on investments—other, shall be accounted for in accordance with the guidance in Topic 860 on transfers and servicing.
Acquisition, Development, and Construction Arrangements
323-970-40-2
See the Acquisition, Development, and Construction Subsection of Section 310-10-40 for additional guidance concerning derecognition of acquisition, development, and construction arrangements that are required to be accounted for as real estate joint ventures under that guidance.
323-970-45Other Presentation Matters
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323-970-45-1
See Section 970-323-25 for discussion of certain presentation matters.
Related subtopics
- 323-30 Partnerships, Joint Ventures, and Limited Liability EntitiesInvestments—Equity Method and Joint Ventures
- 810-970 Real Estate—GeneralConsolidation
- 323-974 Real Estate—Real Estate Investment TrustsInvestments—Equity Method and Joint Ventures
- 360-970 Real Estate—GeneralProperty, Plant, and Equipment
- 970-10 OverallReal Estate—General
- 835-970 Real Estate—GeneralInterest