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ACCOUNTING FOR

JOINT ARRANGEMENTS

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Objectives

To explain the types of jointarrangement and its characteristics

To dierentiate between the nancialreporting methods of joint

arrangements book and investorsbook

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Introduction

MFR !! "oint arrangement "oint arrangement # an arrangement whereby two

or more parties have joint control $para %&'

"oint control # the contract(ally agreed sharing ofcontrol of an arrangement) which exists only whendecisions abo(t the relevant activities re*(ire the(nanimo(s consent of the parties sharing control

$para +& ,o single party controls the arrangement

on its own $para !-&

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Example 1

A Bhd and B Bhd establish business operation, known as ABC Bhd. A Bhd and B

Bhd each have 50% o the votin! ri!hts. Assume that the contractual arran!ement

speciies that the ma"orit# $ 50%&o the votin! ri!hts are re'uired to direct the

relevant activities o ABC Bhd.

(uestion) *s this a "oint arran!ement+

Answers)

"oint arrangement .n arrangement whereby two or more parties have joint control $para

%&'

Two parties / . 0hd and 0 0hd

1s there any joint control2

The decisions abo(t the relevant activities re*(ire the (nanimo(s consent ofthe parties sharing control'

3ecisions abo(t the relevant activities of .04 0hd cannot be made witho(t theconsent of both . 0hd and 0 0hd'

. 0hd and 0 0hd has a joint control of .04 0hd'

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Introduction

"oint operator # a party to a joint operation

"oint vent(rer # a party to a joint vent(re

4ontrol $MFR !- expos(re or have rights)to variable ret(rns from the involvementwith the joint arrangement and have theability to aect those ret(rns thro(gh theirpower over the arrangement

"oint # the control is exerted 5collectively$.ppendix 06&

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Example .1- /E) 23

4.

(uestion) *s this a "oint arran!ement+

Answers)

"oint arrangement

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Contractual Arrangement

4ontract between the parties) min(tes ofdisc(ssions between parties) arrangement inarticles or other by7laws if has separate vehicle # inwriting

3eals with8

a& The p(rpose) activity and d(ration

b& .ppointment of 093 or e*(ivalent governing body

c& The decision making process8 matters) voting

rights) level of s(pportd& The capital or other contrib(tions

e&hare of assets) liabilities) reven(es) expensesor prot or loss relating to the joint arrangement

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Forms of Joint

Arrangements

!' "oint operation

:' "ointly vent(re

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Jointly Operation

. joint arrangement whereby the parties that have jointcontrol of the arrangement have rights to the assets) andobligations for the liabilities) relating to the arrangement'

;s(ally no establishment of a corporation or separate vehicle'

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Jointly controlled operation

Accounting treatment: ,o separate acco(nting records are re*(ired for the joint

arrangement itself = F may not be prepared for the jointarrangement $no consolidation proced(res re*(ired&

.n operator sho(ld recognise in its separate nancialstatements and 4F8

!' 1ts assets) incl(ding shared assets held jointly:' 1ts liabilities) incl(ding shared liabilities inc(rred jointly

>' 1ts reven(e from the sale of its share of theo(tp(t) incl(ding shared reven(e

%' 1ts expenses) incl(ding shared expensesinc(rred jointly

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Jointly controlled operation

Accounting treatment:

A "oint operator shall appl# the relevant accountin! standards

that are applicable to the particular assets, liabilities,

revenues and expenses

he dierence between old and new 6789) transition rom e'uit#method to accountin! or asset sand liabilities

*ntercompan# transactions between "oint operator and the

"oint operation)

9ales or contributions o assets ) !ains or losses onl# to the extent

o its interests, impairment loss in ull

:urchase o assets) cannot reco!nise share o !ain and losses until

it resells to a third part#, impairment loss proportionate to its share

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Joint venture

. joint arrangement whereby the parties thathave joint control of the arrangement have rightsto the net assets of the arrangement

;s(ally involves the establishment of a

corporation) partnership or other entity in whicheach vent(rer has an interest'

The joint vent(re have its own set of acco(ntsand F

The vent(rers are entitled to share of the res(ltsof joint vent(re

?ent(rers contrib(tion to "?7investment forvent(rer = capital contrib(tion for "?

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Joint venture

Accounting treatment: 1n its separate consolidated nancial statements)

shall report its interest in "? entities (sing8 $MFR!:+&

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oint operation vs. "oint venture

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;isclosure re'uirements

&'

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End o the Chapter