Department of Financial Accounting Joint Arrangements (IFRS11)

IFRS 11 Joint Arrangements outlines the accounting by entities that jointly control an arrangement. Joint control involves the contractual agreed sharing of control and arrangements subject to joint control are classified as either a joint venture (representing a share of net assets and equity accounted) or a joint operation (representing rights to assets and obligations for liabilities, accounted for accordingly). The core principle of IFRS 11 is that a party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its rights and obligations and accounts for those rights and obligations in accordance with that type of joint arrangement. 2

Classifying joint arrangements (IFRS11) Joint operations 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 Accounting treatment: A joint operator accounts for the assets, liabilities, revenues and expenses relating to its involvement in a joint operation on a line-by-line basis (proportionate consolidation method) limited to interest held in the joint operator. Joint ventures A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement (similar to investment in Associate). Accounting treatment: A joint venturer recognises 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.IAS 28 3

Elimination of Unrealised Profits Unrealised profits should be eliminated in the same way that are eliminated for a subsidiary. The main difference is that we should not eliminate the whole unrealised profits but our share of the unrealised profits. 4

Joint Operation and Joint Venture Intercompany transaction: PPE Look out who is making profit and who has the asset at year-end Example PPE Profit Interest = 40 % Tax = 28% x 40% = Unrealised profit x 28% = (1 120) Elimination “upstream” Joint Operation sell Joint Operation make profit Consolidation JNL: Joint Operation Elimination “Upstream” Joint Venture sell to investor JV make profit Other Income (SP/LOCI) PPE (Investor) Deferred tax Share of profit in JV (SP/LOCI) PPE4 000 Deferred tax ( SFP) NO ASSET TO SET OFF Consolidation JNL: Joint Venture

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