DipIFR Syllabus D. Preparation of external financial reports - Joint Ventures - Notes ^{2 / 2}

A joint arrangement has the following characteristics:

• The parties are bound by a contract, and

• The contract gives two or more parties joint control

What is Joint Control?

The sharing of control where decisions about the relevant activities need unanimous consent.

The first step is to see if the parties control the arrangement per IFRS 10.

After that, the entity needs to see if it has joint control as per paragraph above

Unanimous consent means any party can prevent other parties from making unilateral decisions (about the relevant activities).

Types of joint arrangements

Joint arrangements are either joint operations or joint ventures:

• A joint operation

  Here the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement. 

  They are called joint operators.

• A joint venture

  Here the parties have rights to the net assets of the arrangement. 

  Those parties are called joint venturers.

• Classifying joint arrangements

  This depends upon the rights and obligations of the parties to the arrangement. Regardless of the purpose, structure or form of the arrangement.

  A joint arrangement in which the assets and liabilities relating to the arrangement are held in a separate vehicle can be either a joint venture or a joint operation.

  A joint arrangement that is not structured through a separate vehicle is a joint operation.

Financial statements of parties to a joint arrangement

• Joint Operations

  A joint operator recognises:

  • its assets, including its share of any assets held jointly

  • its liabilities, including its share of any liabilities incurred jointly

  • its revenue from the sale of its share of the output of the joint operation

  • its share of the revenue from the sale of the output by the joint operation; and

  • its expenses, including its share of any expenses incurred jointly

• A joint operator accounts for the assets, liabilities, revenues and expenses relating to its involvement in a joint operation in accordance with the relevant IFRSs

• Illustration
  An office building is being constructed by A and B, each entitled to half the profits

  A has invoiced 300 and had costs of 280
  B has invoiced 500 and had costs of 420

  This shows that total sales are 800, total costs are 700 - so a profit of 100 needs splitting 50 each.

  A is currently showing a profit of 20, and B of 80. Therefore A now needs to show a receivable of 30 from B (and B a payable to A).

  Revenue should be 400 each, so A needs an extra 100 and costs should be 350 each so an 70 is required.

• Double entry for A
  Dr Receivables  30
  Cr Revenue  100
  Dr COS  70

  If an does not have joint control of a joint operation - it accounts for its interest in the arrangement in accordance with the above if that party has rights to the assets, and obligations for the liabilities, relating to the joint operation.

Joint Ventures

The group accounts for this using the equity method (see associates).

(A party that does not have joint control of a joint venture accounts for its interest in the arrangement in accordance with IFRS 9).

Unrealised profit on sales with JV - always just the share (e.g. 50%)

• P to JV

  • Income Statement

    Increase P’s COS

  • SFP

    Decrease P’s RE
    Decrease Investment in JV

• JV to P

  • Income Statement

    Decrease “Share of JV PAT”

  • Decrease JV’s RE
    Decrease P’s stock

• No Elimination of Receivables and Payables to each other