Joint Arrangement

PFRS 11 Joint Arrangements

PAS 28 Investments in Associates and Joint
Ventures

Learning Objectives
Define a joint arrangement and state
its characteristics
Identify whether joint arrangement
constitutes a joint operation or a joint
venture.
Account for Joint Operations.
Describe the accounting for joint
ventures.

Objective and Scope

PFRS 11 Joint Arrangements
describes the principles for financial
reporting by parties to joint
arrangement. This standard shall be
applied by all parties to a joint
arrangement.

Whats a joint arrangement?

It is an arrangement of which two or
more parties have joint control.

Joint Arrangement
The parties are bound by a
contractual agreement.
The contractual agreement gives two
or more of those parties joint
control of the arrangement.

Types of Joint
Arrangements
Joint Operation
Joint Venture

Contractual Arrangement
The existence of contractual
agreement for sharing of joint control
over an investee distinguishes
interests in joint arrangements from
other investments such as
investment in fair value, investment
in associate and investment in
subsidiary .

Joint Control
The contractually agreed sharing of control
of an arrangement, which exists only when
decisions about the relevant activities
requires the unanimous consent of the
parties sharing control.
No joint operator or venturer obtains
leverage over the other joint operator in
terms of voting rights in making financial
and operating decisions.

Nature of
Relationshi
p With
Investee

Type of
Investment

Interest in
Voting
rights of
investee

Applicable
Reporting
Standard

Accounting
treatment
for
investment

Regular
Investor

Investment
in FVPL or
FVOCI

Less than
20%

PFRS 9

Fair Value

Significant
Influence

Investment
in Associate

20% to 50%

PAS 28

Equity
Method

Control

Investment
in Subsidiary

51% to
100%

PFRS 3 and
PFRS 10

Consolidatio
n*

Joint
Control

Joint
Operation

Contractuall
y Agreed

PFRS 11 and
other
relevant
PFRSs

Recognize
own assets,
liabilities,
revenues
and
expenses in
joint
operation.

PFRS 11 and
PAS 28

Equity
Method

Joint Venture

Case Analysis
#1
A, B, C establish an arrangement
whereby A has 50% of the voting rights
in the arrangement, B has 30% and C
has 20%. The contractual arrangement
between A, B and C specifies that at
least 75% of the voting rights are
required to make decisions about the
relevant activities of the arrangement.

#2
A, B, and C establish an arrangement
whereby A has 50% of the voting rights
in the arrangement, B has 25% and C
has 25%. The contractual arrangement
between A, B and C specifies that at
least 75% of the voting rights are
required to make decisions about the
relevant activities of the arrangement.

#3
Assume an arrangement in which A
and B each have 35% of the voting
rights in the arrangement with the
remaining 30% being widely
dispersed. Decisions about the
relevant activities require approval
by the majority of the voting rights.

Types of Joint
Arrangement
PFRS requires an entity to determine the
type of joint arrangement in which it is
involved. The following are the types of
joint arrangement under PFRS 11:
a. Joint Operation is a joint
arrangement whereby the parties that
have joint control of the arrangement
have rights to the assets and obligations
for the liabilities, relating to the
arrangement. Those parties are called
joint operators.

B. Joint Venture
It is a joint arrangement whereby the
parties that have joint control of the
arrangement have rights to the net
assets of the arrangement. Those
parties are called joint ventures.

An entity applies judgment when

determining the type of joint
arrangement in which it is involved.
Such judgment shall be made as follows:
a.Determine the type of joint arrangement by
considering the entitys rights and
obligations arising from the arrangement.
a.Assess rights and obligations by considering
the following:
a. Structure and legal form of arrangement
b. Terms of contractual agreement and
c. other facts and circumstances

Assessment of Rights and

Obligations
Structure and Legal form of the
arrangement
a.A joint arrangement that is not
structured through a separate vehicle is a
joint operation.
b.A joint arrangement in which assets and
liabilities relating to the arrangement are
held in a separate vehicle can be either a
joint venture or a joint operation.

Whats a separate
vehicle?
A separately identifiable financial
structure including separate legal
entities recognized by statute,
regardless of whether those entities
have legal personality.

Case Analysis
A, B, and C, each engaged in the
extraction of oil, agreed to acquire and
jointly operate an oil pipeline. Each party
will use the pipeline to transport its own
product and in return for which bears an
agreed proportion of the expenses of
operating the pipeline. A, B and C agreed
to share equally on the cost of acquiring
the pipeline and the costs of operating it.

#2
A and B agreed to combine their
operations, resources, and expertise to
manufacture, market and distribute
jointly a particular product. Different
parts of the manufacturing process are
carried out by each of the parties.
Each party bears its own costs and
takes a share of the revenue from the
sale of the product equally.

#3
A and B entered into a joint agreement to form
Alphabets Corporation which shall manufacture
materials required by A and B for their own
individual manufacturing process. The arrangement
ensures that the parties operate the facility that
produces the quantity and quality specifications of
the parties.
Each party shall have a 50% ownership interest in
the Alphabets Corporation. Alphabets Corporation
shall have its own assets, incurs obligation , and
generates and incurs its own income and expenses.