IFRS 11: JOINT ARRANGEMENTS

Question 1

Which are the two “assessment” to do for be inside the scope of IFRS 11 (joint control)?

Answer 1

Assessment 1:
EXISTENCE OF JOINT ARRANGEMENT
contractual arrangement that gives two or more parties joint control of the arrangements

Assessment 2:
CLASSIFICATION OF THE JOINT ARRANGEMENT (joint operation or joint venture)
Determine the classification of the joint arrangement based on analysis of the parties rights and obligations arising from the arrangement.

Question 2

What is the key determination of the scope of IFRS 11 (joint control)?

Answer 2

Joint control exists only when decisions about the relevant activities (i.e. those activities that impact the investors variable returns) require the unanimous consent of 2 or more parties, whether specifically stated or implicitly implied.

Question 3

Situations that do not result in joint control

Answer 3

• Only a single party can control relevant activities
• When unanimous consent is not required
• When e the decisions being made are not in relation to relevant activities and/or are protective in nature.

Question 4

When may exist “joint de-facto” control?

Answer 4

As with de-facto control, joint de-facto control may exists where parties do not have a majority of the voting rights to make decisions regarding relevant activities.
In order to qualify for joint de-facto control, there must be a contractual agreement between the parties concerned to vote together.

Need to consider the same factors as under IFRS 10 for de-facto control
- Size of the holding relative to the size and dispersion of other vote holders
- Potential voting rights
- Other contractual rights

Past voting history showing consistent voting patterns is not sufficient to establish joint de-facto control under IFRS 11

Question 5

How are classified (under IFRS 11) joint arrangements?

Answer 5

1) Joint Operation: the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement;

2) Joint Venture: the parties have rights to the net assets of the arrangement.

Question 6

Which are the consolidation techniques applied of joint arrangements?

Answer 6

1) Joint Operation:
Accounting for the share of underlying assets/liabilities and revenue/expenses according to the entity’s shares in the assets, liabilities, revenues and expenses of the joint operation as determined and specified in the contractual arrangement, rather than basing the recognition of assets, liabilities, revenues and expenses on the ownership interest that the entity has in the joint operation.

2) Joint Venture: Equity method in accordance with IAS 28 Investments in Associates and Joint Ventures (unless equity method exemption applies).

Question 7

Classification and consolidation techniques of joint arrangements

Answer 7

1) Joint Operation: the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement;

Consolidation techniques: Accounting for the share of underlying assets/liabilities and revenue/expenses according to the entity’s shares in the assets, liabilities, revenues and expenses of the joint operation as determined and specified in the contractual arrangement.

2) Joint Venture: the parties have rights to the net assets of the arrangement.

Consolidation techniques: Equity method in accordance with IAS 28 Investments in Associates and Joint Ventures (unless equity method exemption applies).