Scribd Logo
Upload

Welcome to Scribd!

  • 14 views

    AFAR-04-Joint Arrangements - Lecture

    Uploaded by

    ChristianAquino
    The document defines joint arrangements and the two types: joint operations and joint ventures. It discusses accounting for joint operations using line-by-line accounting and scenarios for recognizing gains or losses on assets contributed to a joint operation. The document also covers accounting for joint ventures using the equity method under IAS 28 or cost/fair value under IAS 27.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    AFAR-04-Joint Arrangements - Lecture

    Uploaded by

    ChristianAquino
    14 views2 pages
    The document defines joint arrangements and the two types: joint operations and joint ventures. It discusses accounting for joint operations using line-by-line accounting and scenarios for recognizing gains or losses on assets contributed to a joint operation. The document also covers accounting for joint ventures using the equity method under IAS 28 or cost/fair value under IAS 27.

    Original Title

    AFAR-04-Joint Arrangements_Lecture

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document defines joint arrangements and the two types: joint operations and joint ventures. It discusses accounting for joint operations using line-by-line accounting and scenarios for recognizing gains or losses on assets contributed to a joint operation. The document also covers accounting for joint ventures using the equity method under IAS 28 or cost/fair value under IAS 27.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    14 views2 pages

    AFAR-04-Joint Arrangements - Lecture

    Uploaded by

    ChristianAquino
    The document defines joint arrangements and the two types: joint operations and joint ventures. It discusses accounting for joint operations using line-by-line accounting and scenarios for recognizing gains or losses on assets contributed to a joint operation. The document also covers accounting for joint ventures using the equity method under IAS 28 or cost/fair value under IAS 27.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Joint arrangements – IFRS 11

    Definition of a joint arrangement:


    • Contractual
    • Two or more parties
    • Joint control – unanimous consent is required between or among the parties in the joint arrangement

    For example: Mr. A has 60% ownership, Mr. B has 20% ownership, Mr. C has 15% ownership and Mr. D has
    5% ownership.

    Mr. A and Mr. D agrees to share joint control, if Mr. A wants to enter into the construction contract, while
    Mr. D does not want = there won’t be any decision

    2 types of joint arrangement:


    1. Joint operation – parties will have rights over the assets and obligations to the liabilities of the joint
    operation (joint operator is an owner/co-owner of the assets of the JO and is liable for the liabilities
    of the JO)
    2. Joint venture – parties have rights over the net assets (joint venture is an investor of the JV)

    NOTE: JV is always structured through a separate vehicle while JO can be structured with or without a
    separate vehicle.

    Accounting for Joint Operations – line by line accounting of the assets and liabilities, revenues and expenses
    Mr. A and Mr. B entered into a joint operation. Under the agreement, Mr. A owns 60% of the cash of the JO
    and Mr. B owns 50% of the plant assets of the joint operation.

    Cash of JO – P100,000; Plant assets of JO – P250,000

    Books of Mr. A
    • Cash – JO: P60,000
    • Plant assets – JO: P125,000

    Books of Mr. B
    • Cash – JO: P40,000
    • Plant assets – JO: P125,000

    Special scenario: personal gains on assets of the JO will be recognized only to the extent of the share of the
    other party(ies)

    Mr. A has a plant asset of P500,000 (fair value of P800,000) and he invests it into a joint operation for a 40%
    interest in the JO.

    1. How much is the JO – Plant Asset to be reported in the books of Mr. A?


    2. How much is the gain on sale to be reported in the books of Mr. A?
    Carrying value of the plant asset invested P500,000
    % retained 40%
    Carrying value of the plant asset – JO P200,000

    Plant asset
    • 60% of the P500,000 is transferred out
    Consideration (investment ni Mr. B na mapupunta) XX (40% of the investment of B)
    PPE (transferred) 300,000
    Gain on sale 180,000
    • 40% of the P500,000 will still be reflected in your books
    PPE – JO 200,000
    PPE (retained) 200,000

    Fair value P800,000


    Carrying value (500,000)
    Gain P300,000
    % transferred out 60%
    Gain to be recognized by Mr. A P180,000
    Plant asset na 100% -> JO which is 60% owned by another person and 40% owned by you -> plant asset na
    40% babalik sayo (di ka magkaka-gain dyan kasi nasayo pa din yung asset); gain to be recognized is only the
    portion transferred out (yung hindi babalik sayo)

    Joint Venture – IAS 28 or IAS 27


    • If under IAS 28: equity method (if silent)
    • If under IAS 27 (Separate financial statements of a parent): choice among: cost, fair value in
    accordance with IFRS 9 or equity method

    Why is it called equity method? Investment will mirror the equity


    Example:
    • What is the effect of net income on equity? Increases equity; investment in JV will also increase
    • What is the effect of dividends on equity? Decreases equity; investment in JV will also decrease

    Intercompany transactions such as intercompany sale of inventory from the investor to the JV – recognize
    the gain on such transaction to the extent of the % transferred (yung gain not transferred will be eliminated)

    You might also like