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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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15.8 Discontinuing the equity method
15.8.1 Extract from FRS102: Section 14.8(i) and section 15.18
If investor does not have joint control
15.18 An investor in a joint venture that does not have joint control shall account for that investment in accordance with Section 11 Basic Financial Instruments or Section 12 Other Financial Instruments Issues or, if it has significant influence in the joint venture, in accordance with Section 14 Investments in Associates.
Discontinuing the equity method
14.8(i) An investor shall cease using the equity method from the date that significant influence ceases and, provided the associate does not become a subsidiary in accordance with Section 19 Business Combinations and Goodwill or a joint venture in accordance with Section 15 Investments in Joint Ventures, shall account for the investment as follows:
(i) If the investor loses significant influence over an associate as a result of a full or partial disposal, it shall derecognise that associate and recognise in profit or loss the difference between the proceeds from the disposal and the carrying amount of the investment in the associate relating to the proportion disposed of or lost at the date significant influence is lost. The investor shall account for any retained interest using Section 11 Basic Financial Instruments or Section 12 Other Financial Instruments Issues, as appropriate. The carrying amount of the investment at the date that it ceases to be an associate shall be regarded as its cost on initial measurement as a financial asset; and
(ii) If an investor loses significant influence for reasons other than a partial disposal of its investment, the investor shall regard the carrying amount of the investment at that date as a new cost basis and shall account for the investment using Sections 11 or 12, as appropriate. The gain or loss arising on the disposal shall also include those amounts that have been recognised in other comprehensive income in relation to that associate, where those amounts are required to be reclassified to profit or loss upon disposal in accordance with other sections of this FRS. Amounts that are not required to be reclassified to profit or loss upon disposal of the related assets or liabilities in accordance with other sections of this FRS shall be transferred directly to retained earnings.
15.8.2 OmniPro comment
15.8.2.1 Overview
See the example below for application of the guidance is Section 14.8(i) of FRS 102 and Section 15.18 of FRS 102:
15.8.2.2 Illustration of the requirements where equity accounting is discontinued or joint venture is disposed of (or part thereof)
15.8.2.2.1 Full derecognition of joint venture due to sale
Example 13: Full derecognition of joint venture due to sale
If we take example 5 above at 15.7.2.2.2 and assume at the start of year 2, Company A sold its 35% interest in the joint venture to a third party for CU70,000. The journals to post in the consolidated accounts are:
| CU | CU | |
| Dr Bank | 70,000 | |
| Cr Investment in Joint Venture | 60,100 | |
| Cr Profit on Disposal of Associate | 9,900 |
Being derecognition in the consolidated accounts of the carrying amount up to the date of the disposal to reflect the profit on disposal as required by Section 14.8(i) (i) of FRS 102.
15.8.2.2.2 Partial derecognition of joint venture due to sale but joint control still retained
Example 14: Partial derecognition of a joint venture due to sale but joint control still retained
If we take example 5 above at 15.7.2.2.2 and assume at the start of year 2, Company A reduced its holding in the joint venture from a 35% to a 25% interest but still the parties agreed that there was joint control. On sale the company received CU20,000 on sale. The journals to post in the consolidated accounts are:
| CU | CU | |
| Dr Bank | 20,000 | |
| Cr Investment in Associate
(CU60,100*(10/35)) |
17,171 | |
| Cr Profit on Disposal of Joint Venture | 2,829 |
Being journal to reflect profit on disposal as required by Section 14.8(i) of FRS 102.
From that date on the remaining carrying amount of CU42,929 (CU60,100-CU17,171) is treated as the investment cost as required by Section 14.8(i) of FRS 102.
15.8.2.2.3 Transfer of joint venture as a result of loss of joint control due to sale
Example 15: Transfer of joint venture as a result of loss of joint control due to sale
If we take example 5 above at 15.7.2.2.2 and assume at the start of year 2, Company A reduced its holding in the joint venture from a 35% to a 15% interest such that there was no longer joint control. On sale the company received CU30,000. The journals to post in the consolidated accounts are:
| CU | CU | |
| Dr Profit on Disposal of Joint Venture | 4,343 | |
| Dr Bank | 30,000 | |
| Cr Investment in Joint Venture
(CU60,100*(20/35)) |
34,343 |
From the date of sale, the remaining 15% with a carrying amount of CU25,757 (CU60,100-CU34,343) is reclassed as a financial asset and accounted for in accordance with Section 11-Basic Financial Instruments as required by Section 14.8(i) and Section 15.18 of FRS 102 or where significant influence is still held accounted for as an associate. Where fair value can be determined it will be fair valued at the end of each reporting date with movements posted in the profit and loss.
15.8.2.2.4 Loss of joint control not due to sale
Example 16: Loss of joint control not due to sale
If we take example 5 above at 15.7.2.2.2 and assume joint control was lost due to additional shares being issued due to certain preference shares converting for example. In this instance no profit or loss is recognised on disposal instead the carrying amount of CU60,100 becomes the investment cost and is accounted for in accordance with Section 11 or Section 14 of FRS 102. This is as stated in Section 14.8(i)(i) of FRS 102.
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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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