International Financial Reporting

Standards

Chapter 1-
IFRS 11 Joint
Arrangements

The views d in this presentation are those of the

expresse not presenter,
necessarily thos e of the IASB or IFRS Foundation
 Introduction
•IFRS 11 Joint Arrangements establishes principles for
financial reporting by parties to a joint arrangement.
•The standard must be applied by all entities who are
party to a joint arrangement.
IFRS 11 JOINT ARRANGEMENTS

• A joint arrangement is an arrangement in which

two or more parties have joint control.
• Joint control 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.
• An entity that is a party to an arrangement must
assess whether the contractual arrangement
gives all the parties, or a group of the parties,
control of the arrangement collectively.
 Formation
• The contractual arrangement is usually in writing, whatever its form,
and it will deal with the following issues surrounding the joint
venture.
• Its activity, duration and reporting obligations
• The appointment of its B.O.Ds(or equivalent) & the voting rights of
the parties
• Capital contributions to it by the parties
• How its output, income, expenses or results are shared between the
parties

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Introduction
• Reasons for:
 opportunity to gain new capacity and expertise
 enterrelated businesses or new
geographic markets or gain new technological
knowledge
 gives access to greater resources,
including specialized staff and technology
 shares risks
 can be flexible
 Example 1: Two parties establish a separate legal entity in which each has 50%
of the voting rights (and equivalent power) over the investee’s
relevant activities.
 The contractual arrangement between the two parties specifies that at least 51%
of the voting rights are required to make decisions about the entity’s
relevant activities.
Required: Assess the existence of joint control

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 Assessment : Decisions regarding relevant activities cannot be made
without both parties agreeing i.e. the parties have implicitly
agreed that they have joint control over the entity .
 Therefore, the two parties must apply the requirements of IFRS 11.

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 Example 2:Three parties establish a separate legal entity (entity Z) in which they
have different shares of voting rights.
 Entity A 50% ,Entity B 30% and Entity C 20% . The contracts specifies that at
least 75% of the voting rights are required to make decisions about the entity
Z’s relevant activities.
 Required: Assess existence of a joint control?

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 Assessment : Although Entity A can block any decision, it does not control entity
Z alone because it always needs the consent of B to decide about entity
Z’s relevant activities.
 This is because the combination of A and B voting together is the only single
combination of parties that can control decisions about the relevant activities of
entity Z:
Combination of A and B 80% Control
Combination of A and C 70% No control
Combination of B and C 50% No control
 The analysis shows that there is joint control, meaning that entities A and
B must apply the requirements of IFRS 11.

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 Forms of Joint
arrangements
Joint operation or Joint venture

• A joint arrangement is classified as either a joint operation or a joint venture.

• A 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.

• A 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.
 Accounting for a joint
operation
• A joint operator shall recognise 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 arising from the joint
operation
 its share of the revenue from the sale of the output by the joint operation
 its expenses, including its share of any expenses incurred jointly
 Accounting for a joint venture
• A joint venturer should recognise its interest in a joint venture as
an

investment and should account for that investment using the equity method

in accordance with IAS 28 unless the entity is exempted from applying the

equity method
 EQUITY METHOD
 Initial Investment --Investment in JV….xx
Cash/other assets….xx
 Net Income ---------Investment in JV….xx
Income from JV…….xx
 Net Loss -------------Loss from JV……...xx
Investment in JV…...xx
 Dividend ------------Dividend receivable/ cash…..……...xx
Investment in JV…………….
…...xx
Equity accounting for a JV ’s losses continues until the
investment is reduced to zero. Additional losses may be
recognized as a liability if an entity has a legal or
constructive obligation or made payments on behalf of the
associate or joint venture Recognition of future share of
 EXAMPLE
■ Arthur Company and Beatrice
Companyeach investedBr
400,000.00 for a 50% interest in ARBE
joint venture on January 1,
2019. At December 31, 2019,
ARBE reported a Net Income of Br
300,000.00 and also on December 21,
2019 it declared a dividend of Br
100,000.00.
 Solution
For Arthur and Beatrice personal
January
account Investment in
1: ARBE……..400,000.00
Cash…………..…………
December Investment in
400,000.00
31: ARBE……..150,000.00
Income from ARBE…………
December Dividend
150,000.00
21: receivable………..50,000.00
Investment in
ARBE……..50,000.00
1) Joint control exists where:

A. The decisions in areas essential to the goals of the joint

arrangement do not require the consent of the parties.

B. One party alone has power to control the strategic operating decisions
of the joint arrangement.

C. No single party is in a position to control the activity unilaterally.

D. No one party may be appointed as the manager of the

joint arrangement.

C
2) The joint arrangement is not structured through a
separate vehicle, the arrangement is classified as a

A. Joint venture

B. Joint vehicle.

C. Joint structure
D
D. Joint operation.
3) Assume that two parties structure a joint arrangement in an incorporated
entity (entity C) in which each party has a 50 per cent ownership interest.
The purpose of the arrangement is to manufacture materials required by the
parties for their own, individual manufacturing processes.
The arrangement ensures that the parties operate the facility that produces
the materials to the quantity and quality specifications of the parties
Assessment of the relevant facts and circumstances indicate that the
arrangement is a
A. joint operation. D
The legal form of entity C (an incorporated entity) through which the activities
are conducted initially indicates that the assets and liabilities held in entity C
B. Joint vehicle. are the assets and liabilities of entity C.

The contractual arrangement between the parties does not specify that the
C. Joint structure. parties have rights to the assets or obligations for the liabilities of entity C.

Accordingly, the legal form of entity C and the terms of the contractual
arrangement indicate that the arrangement is a joint venture
D. Joint venture.
 4) Which of the following is a characteristic of a joint venture?
A. The initial carrying value reported must equal the book value
of resources contributed

B. Debt incurred by the venture is reported on the venturers'

statement of financial position

C. The partners can be individuals, but cannot be businesses.

D. The partners all jointly share in managing and controlling

the venture.
5) Joint control exists only when decisions about the relevant activities,

• A) Parties with less than 20 percent control right

B
• B) Require the unanimous consent of the parties

• C) No need to have joint control

• D) Single party is in a position to control the activity unilaterally

6) X control over the composition of Y's board of directors. X owns
49% of Y and is the largest shareholder. X has an agreement with Z,
which owns 10% of Y, whereby Z will always vote in the same way
as X. Can X exercise control over ?
A. X can exercise control because it controls more than 50% of the
voting power, and it can govern the financial and operating policies of
Y.
B. X cannot exercise control because it owns only, 49% of the voting
rights.
C. X can exercise control solely because it has an agreement with Z for
the voting rights to be used in whatever manner X wishes.
D. X cannot exercise control because it can control only the makeup of
the board and not necessarily the way the directors
7) This is defined as an arrangement in which two or more parties
have joint control
a. Joint operation
b. Joint venture
c. Joint arrangement
d. Joint undertaking
• 8) In the case of a jointly controlled operation, a venturer should
account for its Interest by

• A. Recognizing the assets and liabilities, expenses and income that

relate to its interest in the joint venture

• B. Showing its share of the assets that it jointly controls, any liabilities
incurred jointly or severally, and an income or expense relating to
its interest in the joint venture.

• C. Using the purchase method of accounting

D
• D. Using the equity method or proportionate consolidate
9) It is a type of joint arrangement whereby the parties that have joint control of

the arrangement have right to the total assets and obligations for the total

liabilities relating to the arrangement.

a. Joint venture

b. Jointly controlled asset

c. Joint operation

d. Joint business
 10) A joint arrangement in which parties have rights to the assets
but not obligations for the liabilities is known as
• A) Joint venture

• B) Joint operation

• C) Joint control

• D) Sole proprietor
11) Join control is defined as

• A). The power to govern the financial and operating policies of another entity so as to obtain
benefits from its activities

• B). The power to participate in the financial and operating policy decisions of another entity.

• C). The contractually agree sharing of control of an arrangement which exists only when
decisions about relevant activities require majority consent of the parties sharing control

• D). The contractually agree sharing of control of an arrangement which exists only when
decisions about relevant activities require unanimous consent of the parties sharing
control
12) What entities shall apply IFRS 11?

A. Only those entities that have joint control over a joint arrangement

B. Only those entities that have significant influence over a joint

arrangement

C. Only those entities that are a party to a joint arrangement

D. All of the above D

13) What is the classification of the joint arrangement when the assets and
liabilities relating to the arrangement are held by a separate vehicle or when
the arrangement is established with separate vehicle?

a. It shall be classified as joint venture

D
b. It shall be classified as joint operation
c. Neither joint venture nor joint operation
d. It can be either a joint operation or joint venture depending on the legal
form of the separate vehicle, terms of the contractual arrangement or other
relevant facts and circumstance.
14) Under IFRS 11, how shall the joint operator account for its interest in a joint
operation?
a. The joint operator shall account for its interest under Equity Method
b. The joint operator shall account for its interest under Cost Method
c. The joint operator shall account for its interest using proportionate
consolidation
d.The joint operator shall account for its interest by recognizing its assets, its
liabilities, its revenue, its expenses and its shares in the jointly controlled assets,
jointly incurred liabilities, jointly earned revenue and jointly incurred expenses
in accordance with the contractual arrangement.
15) According to IFRS 11, it is a separately identifiable financial
structure, including separate legal entities of entities recognized by
statute, regardless of whether those entities have a legal personality
expressed as

• A) Special purpose entity

• B) Separate vehicle

• C) Unit of account

• D) Special purpose vehicle