IFRS 11 "JOINT ARRANGEMENT": JOINT VENTURE AND JOINT OPERATION

 

IFRS 11 “JOINT ARRANGEMENT”

(JOINT OPERATION AND JOINT VENTURE)

This is a detailed explanation on IFRS 11 "Joint Arrangement” as we discussed:

• Meaning of IFRS 11 “joint arrangement                 
• What Joint control is?
• Objective of IFRS 11
• Party to the joint arrangement.
• Type of joint arrangement
• What is Joint operations?
• What is Joint ventures? 
• What does Separate vehicle in joint arrangement mean?
• Financial statement of parties to a joint arrangement

IFRS 11 “JOINT ARRANGEMENT”

Joint arrangement is a contractual agreement between two or more parties to have joint control over an entity. Activities relating to joint arrangement are contained in “IFRS 11” Joint Arrangement which was released by the “IASB” in May, 2011, and its application was to begin on 1^st of January, 2013. According to IFRS 11 “Joint arrangement is an arrangement of which two or more parties have Joint control:’

Joint Control

Joint control as defined by the standard is a contractual agreed sharing of control of an arrangement, which exists only when decision about the relevant activities required the unanimous consent of the parties sharing control

Objective of IFRS 11

The objective of IFRS 11 “is to establish the principles for financial reporting by entities that have interest in joint arrangement”. This standard shall be applied by entities that are party to a joint arrangement.

Party To The Joint Arrangement

Party to the joint arrangement in this context refers to the entity that participate in joint arrangement irrespective of whether the entity has joint control of the agreement,

TYPES OF JOINT ARRANGEMENT

As stated under IFRS 11, there are two types of joint arrangement;

1.        Joint operations 
2.         Joint ventures

1.    Joint Operation

Joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligatment for the liabilities relating to the arrangement. The parties that have the joint control of the operation under this arrangement are called Joint Operators. An arrangement can be joint arrangement even though not all of its parties have joint control

2.    Joint Ventures

Joint Ventures on the other hand “is an arrangement whereby the parties that have joint control of the arrangement have the right to the net asset of the arrangement”. The parties that have joint control under this arrangement are called a Venturer or Co–venture.

Separate Vehicle In Joint Arrangement

According to the standard under the appendix section of IFRS 11, a separate vehicle is a separately identifiable financial structure, including separate legal entity or entities recognized by status, regardless of whether those entities have a personality. It was stated further in the standard that a structured joint arrangement can either be a joint venture or a joint operation, which is determined by the legal form of a separate entity, the terms of the contract and circumstances. When a joint arrangement is not structured through a separate vehicle, it is considered a joint operation.

According to the standard, a joint Arrangement in which the assets and liabilities relating to the arrangement are held in a separate Vehicle can either be a joint operation or a joint   venture. When a joint arrangement is not structured through a separate vehicle, it is a joint operation.

In summary, a separate Vehicle means creating a separately identifiable financial structure.

                    Financial Statement Of Parties To A Joint Arrangement

·        Joint Operator: A joint operator account for the assets, liabilities, revenues and expenses relating to his involvements in a joint operation in accordance with the appropriate standard. For instance, for an entity that acquires interests in a joint operation in which activities constitute a business as defined in IFRS 3 “Business Combination”, such entity is required to apply all of the principles of business combination accounting in IFRS 3 and other IFRS standard except those that conflict with the guidance of IFRS 11.

·        Parties to a Joint Operation: For a party that participate in a joint operation but does not have joint control, Paragraph 23 of IFRS 11 stated that the joint operation shall account for its interest in the arrangement in accordance with IFRS 3 if the parties has right to the assets, and obligation for the liabilities relating to the joint operation.

·        Joint venturer: A Joint Venturer recognizes his interest in a joint Venture as an investment and shall account for the investment in accordance with IAS 28 “Investment in Associate and Joint Venture” or else the entity is exempted from applying the equity method based on form of the interest as contained in the paragraph 24 of the revised standard.

·        Party That Participate In A Joint Venture: Any party that participate in a joint venture but does not have joint control of the arrangement, a joint venture accounts for its interest in accordance with IFRS 9 “Finical Instrument” unless it has significance influence over the joint venture, under which can account for it in accordance with IAS 28 (IFRS 11 :25).