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Scope
IAS 31
applies to accounting for all interests in joint ventures and the repor=
ting
of joint venture assets, liabilities, income, and expenses in the finan=
cial
statements of venturers and investors, regardless of the structures or
forms under which the joint venture activities take place, except for
investments held by a venture capital organisation, mutual fund, unit
trust, and similar entity that (by election or requirement) are account=
ed
for as under IAS 39 at fair value with fair value changes recognised in
profit or loss. [IAS 31.1]
Key Definitions [IAS 31.3]
Joi=
nt
venture: A contractual arrangement whereby two or more parties un=
dertake
an economic activity that is subject to joint control.
Ven=
turer: A party to a =
joint
venture and has joint control over that joint venture.
Inv=
estor
in a joint venture: A party to a joint venture and does not have joint contr=
ol
over that joint venture.
Con=
trol: The power to =
govern
the financial and operating policies of an activity so as to obtain
benefits from it.
Joi=
nt
control: The contractually agreed sharing of control over an econ=
omic
activity such that no individual contracting party has control.
Jointly Controlled Operations
Jointly
controlled operations involve the use of assets and other resources of =
the
venturers rather than the establishment of a separate entity. Each vent=
urer
uses its own assets, incurs its own expenses and liabilities, and raises
its own finance. [IAS 31.13]
IAS 31
requires that the venturer should recognise in its financial statements=
the
assets that it controls, the liabilities that it incurs, the expenses t=
hat
it incurs, and its share of the income from the sale of goods or servic=
es
by the joint venture. [IAS 31.15]
Jointly Controlled Assets
Jointly
controlled assets involve the joint control, and often the joint owners=
hip,
of assets dedicated to the joint venture. Each venturer may take a shar=
e of
the output from the assets and each bears a share of the expenses incur=
red.
[IAS 31.18]
IAS 31
requires that the venturer should recognise in its financial statements=
its
share of the joint assets, any liabilities that it has incurred directly
and its share of any liabilities incurred jointly with the other ventur=
ers,
income from the sale or use of its share of the output of the joint
venture, its share of expenses incurred by the joint venture and expens=
es
incurred directly in respect of its interest in the joint venture. [IAS
31.21]
Jointly Controlled Entities
A join=
tly
controlled entity is a corporation, partnership, or other entity in whi=
ch
two or more venturers have an interest, under a contractual arrangement
that establishes joint control over the entity. [IAS 31.24] =
Each
venturer usually contributes cash or other resources to the jointly
controlled entity. Those contributions are included in the accounting
records of the venturer and recognised in the venturer's financial
statements as an investment in the jointly controlled entity. [IAS 31.2=
9]
IAS 31
allows two treatments of accounting for an investment in jointly contro=
lled
entities – except as noted below:
- Proportionate consolid=
ation.
[IAS 31.30]
- Equity method of accou=
nting.
[IAS 31.38]
Propor=
tionate
consolidation or equity method are not required in the following
exceptional circumstances: [IAS 31.2]
- An investment in a joi=
ntly
controlled entity that is acquired and held exclusively with a vie=
w to
its disposal within 12 months from acquisition should be accounted=
for
as held for trading under IAS 39. Under IAS 39, those investments =
are
measured at fair value with fair value changes recognised in profi=
t or
loss. [IAS 28.13(a)]
- A parent that is exemp=
ted
from preparing consolidated financial statements by paragraph 10 of
IAS 27 may prepare separate financial statements as its primary
financial statements. In those separate statements, the investment=
in
the jointly controlled entity may be accounted for by the cost met=
hod
or under IAS 39. [IAS 28.13(b)]
- An investor in a joint=
ly
controlled entity need not use proportionate consolidation or the
equity method if all of the following four conditions are met: [IAS
28.13(c)]
- 1. the investor is it=
self a
wholly-owned subsidiary, or is a partially-owned subsidiary of an=
other
entity and its other owners, including those not otherwise entitl=
ed
to vote, have been informed about, and do not object to, the inve=
stor
not applying proportionate consolidation or the equity method;
- 2. the investor's deb=
t or
equity instruments are not traded in a public market; =
- 3. the investor did n=
ot
file, nor is it in the process of filing, its financial statements
with a securities commission or other regulatory organisation for=
the
purpose of issuing any class of instruments in a public market; a=
nd
- 4. the ultimate or any
intermediate parent of the investor produces consolidated financi=
al
statements available for public use that comply with International
Financial Reporting Standards.
Proportionate Consolidation
Under
proportionate consolidation, the balance sheet of the venturer includes=
its
share of the assets that it controls jointly and its share of the
liabilities for which it is jointly responsible. The income statement of
the venturer includes its share of the income and expenses of the joint=
ly
controlled entity. [IAS 31.33]
IAS 31
allows for the use of two different reporting formats for presenting
proportionate consolidation: [IAS 31.34]
- The venturer may combi=
ne its
share of each of the assets, liabilities, income and expenses of t=
he
jointly controlled entity with the similar items, line by line, in=
its
financial statements; or
- The venturer may inclu=
de
separate line items for its share of the assets, liabilities, inco=
me
and expenses of the jointly controlled entity in its financial sta=
tements.
Equity Method
Proced=
ures
for applying the equity method are the same as those described in IAS 28 Investments in
Associates.
Separate Financial Statements o=
f the
Venturer
In the=
separate
financial statements of the venturer, its interests in the joint venture
should be: [IAS 28.46]
- accounted for at cost;=
or
- accounted for under IA=
S 39
Financial Instruments: Recognition and Measurement.
Transactions Between a Venturer=
and a
Joint Venture
If a
venturer contributes or sells an asset to a jointly controlled entity,
while the assets are retained by the joint venture, provided that the
venturer has transferred the risks and rewards of ownership, it should
recognise only the proportion of the gain attributable to the other
venturers. The venturer should recognise the full amount of any loss
incurred when it is indicative of a permanent decline in value. [IAS 31=
.48]
The
requirements for recognition of gains and losses apply equally to non-m=
onetary
contributions unless the gain or loss cannot be measured, or the other
venturers contribute similar assets. Unrealised gains or losses should =
be
eliminated against the underlying assets (proportionate consolidation) =
or
against the investment (equity method). [SIC 13]
When a
venturer purchases assets from a jointly controlled entity, it should n=
ot
recognise its share of the gain until it resells the asset to an
independent party. Losses should be recognised if they are indicative o=
f a
permanent decline in value. [IAS 31.49]
Financial Statements of an Inve=
stor
An inv=
estor
in a joint venture who does not have joint control should report its
interest in a joint venture in its consolidated financial statements
either: [IAS 31.51]
- in accordance with IAS=
28
Investments in Associates – only if the investor has signifi=
cant
influence in the joint venture; or
- in accordance with IAS=
39
Financial Instruments: Recognition and Measurement.
Disclosure
A vent=
urer
is required to disclose:
- Information about cont=
ingent
liabilities relating to its interest in a joint venture. [IAS 31.5=
4]
- Information about
commitments relating to its interests in joint ventures. [IAS 31.5=
5]
- A listing and descript=
ion of
interests in significant joint ventures and the proportion of
ownership interest held in jointly controlled entities. A venturer
that recognises its interests in jointly controlled entities using=
the
line-by-line reporting format for proportionate consolidation or t=
he
equity method shall disclose the aggregate amounts of each of curr=
ent
assets, long-term assets, current liabilities, long-term liabiliti=
es,
income, and expenses related to its interests in joint ventures. [=
IAS
31.56]
- The method it uses to
recognise its interests in jointly controlled entities. [IAS 31.57=
]
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