Joint Arrangements (IFRS 11)
Last Updated: November 12, 2012
Note: This IFRS applies beginning January 1, 2013. It is examinable on the 2013 CKE and UFE.
This IFRS establishes principles for reporting by entities that have jointly controlled interests.
A joint arrangement is an arrangement where two or more parties have control. Criteria:
- Two or more parties are bound by a contractual arrangement – usually in writing but could be statutory
- If in a separate vehicle, this would usually be incorporated somewhere in the charter or by-laws of the vehicle.
- Terms set out: purpose of the activity, duration of the agreement, how board of directors are appointed, the decision making process, capital and other contributions required, how profits, losses, expenses are shared.
Joint Control: Contractually agreed sharing of control which exists when decisions about relevant activities requires the unanimous consent of all parties sharing control. This arrangement can include other parties who participate but do not control. At least two must control jointly.
It must next be determined whether the joint arrangement is a joint operation or a joint venture.
Joint Operation: Parties have the joint control of the arrangement having rights to the assets, and obligations for the liabilities, relating to the arrangement.
Joint Venture: Parties have the joint control of the arrangement having rights to the net assets of the arrangement.
Recognize, in relation to the entities interest in a joint operation:
- Assets, including its share of any assets held jointly
- Liabilities, including the share incurred jointly
- Revenue from the sale of its share of the output arising from the joint operation
- Share of the revenue from the sale of the output by the joint operation
- Expenses, including its share of any expenses incurred jointly
Account for each of these using the applicable IFRSs.
Additional Sale or Contribution of Assets: Recognize gains and losses only to the extent of the other parties’ interest in the joint operation.
Purchase of Assets from Joint Operation: Do not recognize gains or losses until this asset is sold to an third party.
Parties participating but not having joint control of a joint operation but having rights to the assets and obligations for the liabilities shall account using this same method above. If no rights to assets or obligations for liabilities then use other applicable IFRSs.
Recognize interest in the joint venture as an investment and accounting for that investment using the equity method in accordance with IAS 28 – Investments in Associates and Joint Ventures.