JOINT

ARRANGEMENTS
LEARNING OBJECTIVES
• Define and describe joint arrangements;
• Identify the types of joint arrangements;
• Differentiate joint operation from joint venture;
• Identify and apply the accounting for joint arrangements;
• Journalize the transactions in the books of parties to joint arrangements;
• Apply the IFRS for SMEs for joint arrangements;
• Prepare the financial statements; and
• Identify and incorporate the required disclosures.
IFRS 11 – JOINT ARRANGEMENT
• It is effective starting January 1, 2013 and supersedes:
• IAS 31 – Interest in Joint Venture
• SIC 13 – Jointly Controlled Entities
• It shall be applied by all entities that are party to a joint arrangement.
OBJECTIVE OF IFRS 11
To establish principles for financial reporting by entities by entities that have an interest in arrangements
that are jointly controlled.
JOINT ARRANGEMENT
• It is an arrangement of which two or more parties have joint control.
• It has the following characteristics:
• the parties are bound by a contractual arrangement; and
• the contractual arrangement gives two or more of those parties joint control of the
arrangement.
CONTRACTUAL ARRANGEMENT
It sets out the terms upon which the parties participate in the activity. It generally deals with matters as:
• the purpose, activity and duration of the joint arrangement.
• how the members of the board of directors, or equivalent governing body, of the joint arrangement,
are appointed.
• the decision-making process: the matters requiring decisions from the parties, the voting rights of the
parties and the required level of support for those matters. The decision-making process reflected in
the contractual arrangement establishes joint control of the arrangement.
• the capital or other contributions required of the parties.
• how the parties share assets, liabilities, revenues, expenses or profit or loss relating to the joint
arrangement.
JOINT CONTROL
It is the contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities require the unanimous consent of the parties sharing control.

Control - an investor controls an investee when it is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect those returns through its power over the
investee.

Relevant Activities – are activities of the investee that significantly affect the investee’s returns such as
(but not limited to):
• establishing operating and capital decisions of the investee
• appointing and renumerating an investee’s key management personnel or service providers
JOINT CONTROL ASSESSMENT

Does the contractual Outside the

arrangement give all the parties,
or a group of the parties, control
NO scope of
of the arrangement collectively? IFRS 11

YES
Do decisions about the relevant
activities require the unanimous
consent of all parties, or group Outside the
of the parties, that collectively NO scope of
control the arrangement?
IFRS 11
YES

The arrangement is jointly controlled therefore the arrangement is a joint arrangement.

TYPES OF JOINT ARRANGEMENT
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.

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.

NOTE: The classification of a joint arrangement as a joint operation or a joint venture depends upon
the rights and obligations of the parties to the arrangement
CLASSIFYING JOINT ARRANGEMENT
• An entity determines the type of joint arrangement in which it is involved by considering the:
• structure and form of the arrangement;
• terms agreed by the parties; and
• other facts and circumstances.
• 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.

Separate Vehicle - is a separately identifiable financial structure, including separate legal entities or
entities recognized by statute, regardless of whether those entities have a legal personality.
CLASSIFYING JOINT ARRANGEMENT
Is the arrangement structured through a separate vehicle?
NO

Does the legal form of the vehicle give the investors direct rights to assets
YES
and obligations for liabilities in relation to the arrangement?
JOINT
OPERATION
Does the terms of the contract give the investors direct rights to assets and
YES
obligations for liabilities in relation to the arrangement?

Do other facts and circumstances give the investors direct rights to assets
YES
and obligations for liabilities in relation to the arrangement?

JOINT VENTURE
FINANCIAL STATEMENTS OF PARTIES TO A JOINT ARRANGEMENTS
• IFRS 11 requires a joint operator to recognize and measure the assets and liabilities (and recognize
the related revenues and expenses) in relation to its interest in the arrangement in accordance with
relevant IFRSs applicable.
• IFRS 11 requires a joint venturer to recognize an asset “Investment in Joint Venture” and to account
it using the “equity method” in accordance with IAS 28: Investment in Associate and Joint Venture,
unless exempted.
JOINT OPERATION
A joint operator recognizes in relation to its interest in a joint operation:
• 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.

NOTE: 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.
JOINT VENTURE
A joint venturer recognizes its interest in a joint venture as an investment and shall account for that
investment using the equity method in accordance with IAS 28 Investments in Associates and Joint
Ventures unless the entity is exempted from applying the equity method as specified in that standard.
IFRS FOR SMALL AND MEDIUM-SIZED ENTITIES (SME)
The objective of Section 15: Investment in Joint Ventures is to prescribe the financial reporting
requirements for investments in joint ventures.

Joint Venture – is a contractual arrangement whereby two or more parties undertake an economic
activity that is subject to joint control. It has the following forms:
• Jointly Controlled Operations
• Jointly Controlled Assets
• Jointly Controlled Entities
IFRS FOR SMALL AND MEDIUM-SIZED ENTITIES (SME)
Jointly Controlled Operations
A venturer recognizes in its financial statements the assets that it controls, the liabilities and expenses
that it incurs, and its share of the income that it earns from the sale of goods or services by the joint
venture.
IFRS FOR SMALL AND MEDIUM-SIZED ENTITIES (SME)
Jointly Controlled Assets
A venturer recognizes in its financial statements:
• its share of the jointly controlled assets, classified according to the nature of the assets;
• any liabilities that it has incurred;
• its share of any liabilities incurred jointly with other venturers in relation to the joint venture;
• any income from sale or use of its share of the output of the joint venture, together with its share of
any expenses incurred by the joint venture; and
• any expenses that it has incurred in respect of its interest in the joint venture.
IFRS FOR SMALL AND MEDIUM-SIZED ENTITIES (SME)
Jointly Controlled Entities
A venturer has options to choose models to account for its Investment in Jointly Controlled Entities:
• Cost Model – the investment in joint venture is measured at cost (including any transaction costs) less
any accumulated impairment loss. However, the venturer is required to use “Fair Value Model” if
there is available published price quotation.
• Equity Model - the investment in joint venture is initially recognized at cost (including any
transaction costs) and adjusted thereafter for the post-acquisition change in the investor’s share of
profit or loss and other comprehensive income.
• Fair Value Model - the investment in joint venture is initially recognized at cost (excluding any
transaction costs) and subsequently measured at fair value – the changes are recognized in profit or
loss. However, the venturer is required to use “Cost Model” if it is impracticable to measure fair value
reliably without undue cost or effort.
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