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    Joint Arrangements

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    geexell
    Joint arrangements are arrangements where two or more parties have joint control. There are two types: joint operations, where parties have rights to the assets and obligations for liabilities relating to the arrangement, and joint ventures, where parties have rights to the net assets. Determining the type requires considering rights/obligations in the legal agreement and structure. For joint operations, an entity recognizes its own assets, liabilities, revenues, and expenses. For joint ventures, an entity applies the equity method to recognize its interest as an investment.

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    Joint Arrangements

    Uploaded by

    geexell
    37 views4 pages
    Joint arrangements are arrangements where two or more parties have joint control. There are two types: joint operations, where parties have rights to the assets and obligations for liabilities relating to the arrangement, and joint ventures, where parties have rights to the net assets. Determining the type requires considering rights/obligations in the legal agreement and structure. For joint operations, an entity recognizes its own assets, liabilities, revenues, and expenses. For joint ventures, an entity applies the equity method to recognize its interest as an investment.

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    Joint arrangements are arrangements where two or more parties have joint control. There are two types: joint operations, where parties have rights to the assets and obligations for liabilities relating to the arrangement, and joint ventures, where parties have rights to the net assets. Determining the type requires considering rights/obligations in the legal agreement and structure. For joint operations, an entity recognizes its own assets, liabilities, revenues, and expenses. For joint ventures, an entity applies the equity method to recognize its interest as an investment.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    37 views4 pages

    Joint Arrangements

    Uploaded by

    geexell
    Joint arrangements are arrangements where two or more parties have joint control. There are two types: joint operations, where parties have rights to the assets and obligations for liabilities relating to the arrangement, and joint ventures, where parties have rights to the net assets. Determining the type requires considering rights/obligations in the legal agreement and structure. For joint operations, an entity recognizes its own assets, liabilities, revenues, and expenses. For joint ventures, an entity applies the equity method to recognize its interest as an investment.

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    of 4

    JOINT ARRANGEMENTS

    Basic Concepts
     Joint Arrangements – an arrangement in which two or more parties have joint control.
     Joint Control – the contractually agreed sharing of control of an arrangement which exists
    only when decisions about the relevant activities require UNANIMOUS
    CONSENT of the parties sharing control.
    Notes:
    1. In contrast with significant influence and control, joint control is obtained by an
    investor through contractual agreements with fellow investors.
    No sole joint operator or venture obtains leverage over another joint operator or
    venture with respect of voting rights over financial and operating decisions.
    2. Joint control exists when all of the parties to the contractual agreement act
    collectively (or together) in directing the activities that significantly affect the returns of
    the arrangement.

    Types of Arrangement
     The following are the types of joint arrangements under PFRS 11:
    I. Joint Operation – is a joint arrangement whereby the parties that have joint control of the
    arrangement have rights to the assets and obligations for the liabilities,
    relating to the arrangement. Those parties are called Joint Operators.
    II. Joint Venture – is a joint arrangement whereby the parties that have joint control of the
    arrangement have rights to the net assets of the arrangement. Those parties
    are called Joint Venturers.
     An entity applies judgment when determining the type of joint arrangement in which it is
    involved. Such judgment shall be made as follows:
    1. Determining the type of joint arrangement by considering the entity’s rights and
    obligations arising from the arrangement.
    2. Assess the rights and obligations by considering the following:
    a. Structure and legal form of the arrangement,
    Note:
     A Separate Vehicle is a separately identifiable financial structure,
    including separate legal entities or entities recognized by stature,
    regardless of whether those entities have a legal personality.
     If a Joint Arrangement is NOT structured through a SEPARATE
    VEHICLE it is a Joint Operation.
     A Joint Arrangement in which assets and liabilities relating to the
    arrangement are held in a SEPARATE VEHICLE can EITHER be a
    Joint Venture or Joint Operation.
    b. Terms of the contractual agreement,
    c. Other facts and circumstances.
    Accounting for Joint Arrangements

    SUMMARY OF ACCOUNTING TREATMENTS (FULL PFRS)


    Nature of Type of Applicable Accounting Treatment
    Relationship Investment Reporting Standards
    with Investee
     PFRS 11 and  Recognize own assets,
     Other Relevant liabilities, revenues, and
    PFRS’s expenses plus share in
    Joint Control Joint Operation assets, liabilities, revenues,
    and expenses in joint
    operation

    Joint Venture  PFRS 11 and  Equity Method


     PAS 28

    Accounting For Joint Operation (No Separate Records Are Maintained)


     No separate records are maintained for a joint operation usually if it is short-lived.
     In order to assess the performance of the joint operation, management accounts are
    prepared.
     Management accounts are accounts used for internal reporting purposes only. These are
    closed or eliminated when general-purpose financial statements are prepared.
     A management account “Joint Operation” is used to assess the financial performance of the
    entity.

    Joint Operation (+)


    Merchandise Contributions XX XX Merchandise Withdrawals
    Purchases and Freight-In XX XX Purchases Returns, Discounts and
    Allowance
    Sales Returns, Discounts, and XX XX Sales and Other Income Items
    Allowances
    Expenses XX XX Unsold Merchandise
    Net Loss XX XX Net Income
    Note: The T-account shown above is similar to an income summary account.

     Each joint operator shall set up a joint operation account and personal accounts (i.e.,
    receivable or payable) of other joint operators in his books.
     Any cash received or paid by the manager of a joint operation is recorded by the manager
    in a cash account which may be described as a “Joint Operation – Cash (JO-Cash)”
    account.

    Accounting For Joint Operation (Separate Records Are Maintained)


     Joint operators may want to set up separate records for the joint operation.
     The separate records will be kept by one of the joint operators – normally the appointed
    manager.
     Each joint operator may set up an “Interest in Joint Operation” account which will be used
    by each joint operator to record his own investments, withdrawals, and share in profits or
    losses of the joint operation.

    Interest in Joint Operation


    Contributions and Investments XX XX Sales and Other Income Received
    Cost and Expenses Paid for the XX XX Withdrawals of Contributions or
    Joint Operation Investments
    Share in the Profit of Joint Operation XX XX Share in Loss of the Joint
    Operation
    Cash Receipt (receivable) XX XX Cash Payment (payable) or
    Cash Settlement for J.O.

    Accounting for Joint Ventures


     An entity shall apply PFRS 11 first to determine the type of arrangement in which it is involved.
     If the entity determines that it has an interest in a joint venture, the entity shall recognize its
    interest as an investment and account for it using equity method in accordance with PAS
    28.
     Under the Equity Method, the investment is initially recognized at cost and adjusted
    thereafter for the post-acquisition change in the investor’s share of net assets of the investee.

    Investment in Associate
    Beginning Balance XX XX Share in Dividends
    Investment Income (P/L)* XX XX Share in Investee’s Other
    Comprehensive Loss (OCL)
    Share in Investee’s Other XX XX Impairment Loss (P/L)
    Comprehensive Income (OCI)
    Ending Balance XX

    Note:
     Investment Income (share in profit or loss)
     is recognized only to the extent of unrelated investor’s interests in the joint venture.
    Thus, if a transaction is:
    1. Downstream (from venturer to joint venture)
     eliminate the entire unrealized profit.
    2. Upstream (from joint venture to venturer)
     eliminate investor’s share in the unrealized profit
     IFRS for SMEs provide three (3) methods of accounting for its interest in the joint venture:
    1. Cost Model,
    2. Fair Value Model, and
    3. Equity Model.
    SUMMARY OF ACCOUNTING TREATMENTS (PFRS for SMEs)
    Transactions Cost Model Fair Value Model Equity Model
    1. Original Inv. in JV XX Inv. in JV XX Inv. in JV XX
    Investment Cash XX Cash XX Cash XX

    2. Transaction Inv. in JV XX P/L XX Inv. in JV XX


    Costs Cash XX Cash XX Cash XX

    3. Cash Dividends Cash XX Cash XX Cash XX


    P/L XX P/L XX Inv. in JV XX

    4. Year-end FV Inv. in JV XX
    Adjustment ______ P/L XX ______

    5. Share in Net Inv. in JV XX


    Income ______ ______ P/L XX

    6. Share in P/L XX P/L XX


    Impairment Loss Inv. in JV XX ______ Inv. in JV XX

    Presentation and Disclosure


     Investments accounted for under the equity method are presented as non-current assets
    in the statement of financial position.
     However, when such investments are classified as held for sale in accordance with PFRS
    5, they are presented as current assets.

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