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Contents
15.2 Definition of joint ventures.
15.2.1 Extract from FRS 102: Section 15.2 – 15.3.
15.2.2.1 What forms of entities can be considered a joint venture.
15.2.2.2 What happens where one of the venturers manage the joint venture?
15.2.2.4 What types of joint ventures are there?
15.2.2.5 What is defined as the strategic, financial and operating decisions?
15.2.2.5.1 What is defined a control for the purpose of joint control?
15.2.2.6 What is meant by a contractual arrangement?
15.2.2.7 Is there a requirement for the same percentage holding to be held?
15.2.2.7.1 Determining if joint control exists.
15.3 Jointly controlled operations.
15.3.1 Extract from FRS102: Section 15.4 – 15.5.
15.3.2.1 Jointly controlled operations – Defined.
15.3.2.1.1 Example of a jointly controlled operation.
15.3.2.2 Accounting for a jointly controlled operation.
15.3.2.2.1 Loans to jointly controlled operations.
15.3.2.2.2 Accounting for a jointly controlled operation – worked example.
15.4 Jointly controlled assets.
15.4.1 Extract from FRS 102 15.6 – 15.7.
15.4.2.1 Jointly controlled assets – defined.
15.5 Jointly controlled entities.
15.5.1 Extract from FRS 102 15.8 – 15.9B.
15.5.2.1 Jointly controlled entities – defined.
15.5.2.2 Accounting for Jointly controlled entities.
15.5.2.2.1 Accounting policy choice.
15.6.1 Extract from FRS 102 15.10 – 15.11.
15.6.2.1.1 Definition of cost.
15.6.2.3 Deferred tax under the cost model.
15.6.2.4 Illustration of the cost model.
15.6.2.5 Recognition of Income.
15.7.1 Extract from FRS 102: Section 15.13, 15.16, 15.17 and extract from Section 14.8.
15.7.2.2 Application of equity accounting.
15.7.2.2.2 Worked example illustrating equity accounting requirements.
15.7.2.4 Transactions with joint venturers’.
15.7.2.4.1 Sales and purchases.
15.7.2.4.1.2 Elimination of profit where investor sells goods to joint venture.
15.7.2.4.1.3 Sale of assets to and from joint ventures.
15.7.2.5 Date of joint venture financial statements (Section 14.8(f) of FRS 102).
15.7.2.6 Uniform Accounting policies (Section 14.8 (g) of FRS 102).
15.7.2.7 Losses in excess of investment (Section 14.8(h) of FRS 102).
15.7.2.8 Deferred tax on unremitted earning in the consolidated financial statements.
15.7.2.8.2 Timing difference to reverse through sale.
15.7.2.8.3 Timing difference to reverse through receipt of dividends.
15.7.2.8.4 Example of deferred tax on unremitted earnings.
15.8 Discontinuing the equity method.
15.8.1 Extract from FRS102: Section 14.8(i) and section 15.18.
15.8.2.2.1 Full derecognition of joint venture due to sale.
15.8.2.2.2 Partial derecognition of joint venture due to sale but joint control still retained.
15.8.2.2.3 Transfer of joint venture as a result of loss of joint control due to sale.
15.8.2.2.4 Loss of joint control not due to sale.
15.10 Step increase in an existing joint venture.
15.11 Step increase from investment/financial asset to joint venture.
15.12 Fair value model for a jointly controlled entity.
15.12.1 Extracts from FRS102-Section 15.14-15.15A.
15.12.2.1 Fair value through other comprehensive income (OCI).
15.12.2.1.1 Measurement and recognition.
15.12.2.1.2 Treatment of transaction costs.
15.12.2.1.3 Frequency of valuations.
15.12.2.1.4 What happens when fair value cannot be measured reliably.
15.12.2.1.6 Example of application of Fair Value through Other Comprehensive Income model.
15.12.2.1.7 Recognition of income.
15.12.2.2 Fair value through the profit and loss.
15.12.2.2.1 Measurement and recognition.
15.12.2.2.2 Frequency of valuations.
15.12.2.2.3 What happens when fair value cannot be measured reliably?
15.12.2.2.4 Example of application of Fair Value through profit and loss model.
15.13 Disclosures in individual and consolidated financial statements.
15.13.1 Extracts from FRS102-Section 15.19 – 15.21A.
15.13.2.2 Consolidated financial statements.
15.13.2.2.1 Accounting policies – consolidated financial statements.
15.13.2.2.2 Notes to the financial Statements.
15.13.2.2.3 Consolidated profit and loss account showing share of joint venture interest.
15.13.2.3 Parent entity financial statements.
15.13.2.3.1 Accounting policies.
15.13.2.3.2 Notes to the financial statements.
15.13.2.3.3 Profit and loss account for entity that is not a parent.
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15.4 Jointly controlled assets
15.4.1 Extract from FRS 102 15.6 – 15.7
15.6 Some joint ventures involve the joint control, and often the joint ownership, by the ventures’ of one or more assets contributed to, or acquired for the purpose of, the joint venture and dedicated to the purposes of the joint venture.
15.7 In respect of its interest in a jointly controlled asset, a venturer shall recognise in its financial statements:
(a) its share of the jointly controlled assets, classified according to the nature of the assets;
(b) any liabilities that it has incurred;
(c) its share of any liabilities incurred jointly with the other ventures’ in relation to the joint venture;
(d) any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and
(e) any expenses that it has incurred in respect of its interest in the joint venture.
15.4.2 OmniPro comment
15.4.2.1 Jointly controlled assets – defined
As per Section 15.6 of FRS 102, Jointly controlled assets are effectively operations where venturers’ contribute equally towards the cost of one or more assets and they are owned jointly. No legal entity is created.
Funds provided to the jointly controlled assets are treated the same way as included in the example at 15.3.2.2.2 for jointly controlled operations.
Accounting for jointly controlled assets
As the assets, liabilities, income and expenses will already be reflected in the individual financial statements, no consolidation adjustments are required as they are already included in the entity financial statements. A separate set of books is not required to be kept however it is likely that they will be kept so the performance of the entity can be determined. Therefore as per Section 15.7 of FRS 102 each venturer accounts for the assets it controls, the liabilities they incur and the expenses incurred and share of income that it earns from the sale of goods/services.
Example 4: Jointly controlled assets
Company A, B & C entered into a joint venture whereby they decided to purchase a specially designed warehouse for holding frozen food. As part of the joint venture agreement, all parties had equal say in the operation of the facility and therefore meet the definition of a joint venture. Company A, B & C contributed CU10,000, CU40,000 and CU50,000 respectively which is reflective of the ownership in the asset. The cost of the asset was CU100,000.
The costs are shared in proportion to the ownership. During year 1 the joint venture incurred CU10,000 in costs to maintain the facility excluding depreciation. The property is being depreciated over 5 years. Company A made sales from this unit of CU100,000. This would be accounted in the books of Company A as follows:
| CU | CU | |
| Dr PPE | 10,000 | |
| Cr Cash | 10,000 |
Being journal to recognise the portion of the asset on Company A’s balance sheet
| CU | CU | |
| Dr Property Expenses | 1,000 | |
| Cr Bank
(CU10,000*10%) |
1,000 |
Being journal to reflect Company A’s portion of expenses
| CU | CU | |
| Dr Depreciation | 2,000 | |
| Cr Accumulated Depreciation on PPE (CU100,000/5yrs*10%) | 2,000 |
Being journal to reflect depreciation charge on Company A’s portion of the assets
| CU | CU | |
| Dr Debtors | 100,000 | |
| Cr Sales | 100,000 |
Being journal to reflect sales by Company A.
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Example
Example 1: Determining if joint control exists.
Example 2: Loans to jointly controlled operation.
Example 3: Accounting for a jointly controlled operation.
Example 4: Jointly controlled assets.
Example 5A: Dividend paid out of pre-acquisition reserves.
Example 6: Equity method accounting.
Example 7: Elimination of profit where investor sells goods to joint venture.
Example 8: Sale of asset from venturer to joint venture at profit.
Example 9: Sale of asset from venturer to joint venture at loss.
Example 10: Sale of asset from joint venture to venturer at loss (Section 15.17 of FRS 102).
Example 11: loss in excess of investment.
Example 12: Deferred tax on unremitted earnings.
Example 13: Full derecognition of joint venture due to sale.
Example 14: Partial derecognition of a joint venture due to sale but joint control still retained.
Example 15: Transfer of joint venture as a result of loss of joint control due to sale.
Example 16: Loss of joint control not due to sale.
Example 18: Step increase in an existing joint venture.
Example 19: Step increase from investment /financial asset to associate.
Example 20: Adoption of fair value through other comprehensive income.
Example 21: Adoption of fair value through profit and loss.
Example 22: Extract from the accounting policy notes to the consolidated financial statements.
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