Chapter6 - Interest - in - Join - Ventures - IAS31 (Compatibility Mode)
Chapter6 - Interest - in - Join - Ventures - IAS31 (Compatibility Mode)
Chapter6 - Interest - in - Join - Ventures - IAS31 (Compatibility Mode)
IFRS 11
Related standards
IFRS 11
Current GAAP comparisons
IFRS financial statement disclosures
Looking ahead
End-of-chapter practice
Related Standards
1
Related Standards
IAS 31 – Overview
Exceptions to IAS 31
– venturers’ interests in jointly controlled entities held by venture capital
organizations or mutual funds, unit trusts, and similar organizations that
6 are accounted for at FVTPL
2
IAS 31 – Joint Ventures
Variety of forms - jointly controlled operations, assets, or entities
Contractual agreement:
– usually in writing
– sets out the governance structure of the joint venture
– the capital to be supplied by each venturer
– how the output, income, and expenses will be shared
– the purpose and duration of the venture
Accounting for this form of joint venture is consistent with its economic substance and
usually the legal form of the joint venture
3
IAS 31 – Jointly Controlled Entities
Jointly controlled entities
– may be a corporation, a partnership, or other form of organization
– separate entity controls assets of the joint venture, incurs
liabilities and expenses, and earns income
– each venturer usually has an ownership interest in the venture
and is entitled to a share of its profits or output
– when organized, the individual venturers contribute cash or other
assets in return for an ownership interest
contributions are recognized by each venturer as an investment
in the joint venture
Jointly controlled entity records receipt of assets
contributed to it and prepares and presents financial
statements on the results of its operations and financial
10 position
11
Entities that meet one of the following three conditions are excluded from
applying one of the two methods:
1. Interest in the jointly controlled entity is classified as “held for sale” under
IFRS 5
2. Venturer meets exception in IAS 27.10 that qualifies parent with an
interest in a jointly controlled entity not to present consolidated financial
statements
3. All of the following apply:
(a) venturer is a wholly owned subsidiary or partially owned subsidiary
whose other owners have been informed and do not object to the
venturer not applying the proportionate consolidation or equity method
(b) venturer does not have publicly traded debt or equity instruments
(c) the venturer’s ultimate or intermediate parent produces consolidated
financial statements for public use that comply with IFRSs
12
4
IAS 31 – Jointly Controlled Entities
13
5
IAS 31 – Jointly Controlled Entities
Joint Control Is Lost
When venturer no longer has joint control and the investment has not
become a subsidiary or associate
– account for remaining investment under IAS 39 from date joint control was lost
If the investment becomes a subsidiary
– investor accounts for this as a business combination under IFRS 3 and prepares
consolidated financial statements according to IAS 27
If investment becomes an investment in an associate
– the investor applies IAS 28
When joint control is lost, any remaining investment is measured at its fair
value and a gain or loss on disposal is recorded
The gain or loss is the difference between
– carrying amount of investment when joint control is lost
– total of the fair value of retained investment and proceeds of disposal on the
portion disposed of
16
17
Accounted for as if venturer conducts transactions in part with the other non-
related venturers and in part internally
Transaction is assumed to take place with other venturers at arm’s-length
– the venturer recognizes that portion of the transaction and any associated gain or
loss
To extent the venturer is dealing with its own ownership interest
– that portion of the transaction and gain or loss is eliminated
Requirements
– when a venturer contributes or sells assets to a joint venture, the
venturer recognizes only the portion of any gain or loss that is associated
with the other venturers’ interests
- as the joint venture realizes the gain in its dealings with outside parties, the
venturer then recognizes its portion of any gain or loss as realized
18
6
IAS 31 – Jointly Controlled Entities
Transactions between a Venturer and a Joint Venture
Requirements (continued)
– If a loss is evidence of a decline in the asset’s net realizable value
or an impairment, then full loss is recognized immediately
IAS 31 – Disclosure
Disclosures for Consolidated Financial Statements
20
IAS 31 – Disclosure
A venturer reports information about its joint ventures
description of the interest
proportion of ownership interest held
method it uses to recognize this interest
Totals reported by venturer that relate to its joint venture interests if line-by-
line proportionate consolidation or the equity method is used
– amount of current assets
– long-term assets
– current liabilities
– long-term liabilities
– income
– expenses
Other venturer disclosures
– potential obligations associated with contingent liabilities
– commitments of joint ventures separately from those of venturer itself
21
7
Current GAAP Comparisons
Page 64 of 164 of
http://www.kpmg.co.uk/pubs/IFRScomparedtoU.S.GAAPAnOverview(2008).pdf
22
Looking Ahead
Accounting for investments in joint ventures
– originally a part of the IASB’s short-term convergence project with FASB
– IASB now conducts the joint ventures project alone
IASB
– reviewing the responses to its 2007 Exposure Draft, ED 9 Joint Arrangements
– expects to issue a final IFRS entitled Joint Arrangements in late 2009
24
8
Looking Ahead
Tentative decisions exposed in ED 9, Joint Arrangements
• Types of interests parties could have in a joint arrangement
o direct interests (interests in joint operations or joint assets)
o indirect interests (interest in a joint venture)
End-of-Chapter Practice
26
End-of-Chapter Practice
27