IFRS 11 Joint Arrangements
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IFRS 11 Joint Arrangements
Background
A joint arrangement is an arrangement of 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 (ie activities that significantly affect the returns of the arrangement) require the unanimous consent of the parties sharing control.
IFRS 11 was issued in May 2011 and applies to annual reporting periods beginning on or after 1 January 2013. IFRS 11 superseded SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Ventures.
Objective
The objective of IFRS 11 Joint Arrangements is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (i.e. joint arrangements). For achieving this objective IFRS 11 states below:
•Defines joint control;
•Requires determining the type of joint arrangement; and
•Account for the interest in a joint arrangement based on the type.
The objective of IFRS 11 Joint Arrangements is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (i.e. joint arrangements). For achieving this objective IFRS 11 states below:
•Defines joint control;
•Requires determining the type of joint arrangement; and
•Account for the interest in a joint arrangement based on the type.
Scope
This IFRS shall be applied by all entities that are a party to a joint arrangement.
This IFRS shall be applied by all entities that are a party to a joint arrangement.
Key definitions
Joint arrangement
An arrangement of which two or more parties have joint control
Joint control
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
Joint operation
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
Joint venture
A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement
Party to a joint arrangement
An entity that participates in a joint arrangement, regardless of whether that entity has joint control of the arrangement
Separate vehicle
A separately identifiable financial structure, including separate legal entities or entities recognised by statute, regardless of whether those entities have a legal personality
What is joint arrangement?
A joint arrangement is an arrangement of which two or more parties have joint control.
It has the following characteristics:
(a) The parties are bound by a contractual arrangement
(b) The contractual arrangement gives two or more of those parties joint control of the arrangement
Joint arrangement
An arrangement of which two or more parties have joint control
Joint control
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
Joint operation
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
Joint venture
A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement
Party to a joint arrangement
An entity that participates in a joint arrangement, regardless of whether that entity has joint control of the arrangement
Separate vehicle
A separately identifiable financial structure, including separate legal entities or entities recognised by statute, regardless of whether those entities have a legal personality
What is joint arrangement?
A joint arrangement is an arrangement of which two or more parties have joint control.
It has the following characteristics:
(a) The parties are bound by a contractual arrangement
(b) The contractual arrangement gives two or more of those parties joint control of the arrangement
Joint arrangements are either joint operations or joint ventures:
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. Those parties are called joint operators.
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. Those parties are called joint ventures.
What is joint control and how to measure it?
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.
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. Those parties are called joint operators.
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. Those parties are called joint ventures.
What is joint control and how to measure it?
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.
Before
assessing whether an entity has joint control over an arrangement, an entity
first assesses whether the parties, or a group of the parties, control the
arrangement (in accordance with the definition of control in IFRS 10
Consolidated Financial Statements).
After
concluding that all the parties, or a group of the parties, control the
arrangement collectively, an entity shall assess whether it has joint control
of the arrangement. Joint control exists only when decisions about the relevant
activities require the unanimous consent of the parties that collectively
control the arrangement.
The
requirement for unanimous consent means that any party with joint control of
the arrangement can prevent any of the other parties, or a group of the
parties, from making unilateral decisions (about the relevant activities)
without its consent.
Classification of Joint arrangement:
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. An entity determines the type of joint arrangement in which it is involved by considering the structure and form of the arrangement, the terms agreed by the parties in the contractual arrangement and other facts and circumstances.
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. An entity determines the type of joint arrangement in which it is involved by considering the structure and form of the arrangement, the terms agreed by the parties in the contractual arrangement and other facts and circumstances.
Regardless
of the purpose, structure or form of the arrangement, the classification of
joint arrangements depends upon the parties' rights and obligations arising
from the arrangement.
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. In such cases, the contractual arrangement establishes the parties'
rights to the assets, and obligations for the liabilities, relating to the
arrangement, and the parties' rights to the corresponding revenues and
obligations for the corresponding expenses.
Accounting of Joint arrangements
Accounting of Joint arrangements
Joint operations
Ø its assets,
including its share of any assets held jointly;
Ø its
liabilities, including its share of any liabilities incurred jointly;
Ø its revenue
from the sale of its share of the output of the joint operation;
Ø its share
of the revenue from the sale of the output by the joint operation; and
Ø its
expenses, including its share of any expenses incurred jointly.
The
acquirer of an interest in a joint operation in which the activity constitutes
a business, as defined in IFRS 3 Business Combinations, is required to apply
all of the principles on business combinations accounting in IFRS 3 and other
IFRSs with the exception of those principles that conflict with the guidance in
IFRS 11. These requirements apply both to the initial acquisition of an
interest in a joint operation, and the acquisition of an additional interest in
a joint operation (in the latter case, previously held interests are not
remeasured).
A party that participates in, but does not have joint control of, a joint operation shall also account for its interest in the arrangement in accordance with the above if that party has rights to the assets, and obligations for the liabilities, relating to the joint operation.
A party that participates in, but does not have joint control of, a joint operation shall also account for its interest in the arrangement in accordance with the above if that party has rights to the assets, and obligations for the liabilities, relating to the joint operation.
Joint ventures
A
party that participates in, but does not have joint control of, a joint venture
accounts for its interest in the arrangement in accordance with IFRS 9
Financial Instruments unless it has significant influence over the joint
venture, in which case it accounts for it in accordance with IAS 28 (as amended
in 2011).
Refer below diagram for quick reference of accounting of Joint arrangement: -
Separate Financial Statements
The accounting for joint arrangements in an entity's separate financial statements depends on the involvement of the entity in that joint arrangement and the type of the joint arrangement:
Refer below diagram for quick reference of accounting of Joint arrangement: -
Separate Financial Statements
The accounting for joint arrangements in an entity's separate financial statements depends on the involvement of the entity in that joint arrangement and the type of the joint arrangement:
· If the
entity is a joint operator or joint venturer it shall account for its interest in:
o
a joint operation in accordance with paragraphs 20-22;
o
a joint venture in accordance with paragraph 10 of IAS 27
Separate Financial Statements
· If the
entity is a party that participates in, but does not have joint control of a
joint arrangement shall account for its interest in:
o
a joint operation in accordance with paragraphs 23;
o
a joint venture in accordance with IFRS 9, unless the
entity has significant influence over the joint venture, in which case it shall
apply paragraph 10 of IAS 27 (as amended in 2011).
You may also refer following related standards:-
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