Accounting for

Joint Ventures
Objectives
To explain the types of Joint Venture
and its characteristics

To differentiate the financial reporting
methods of JV between ventures book
and investors book
Introduction
FRS 131 Financial Reporting of Interest in JV,
para 3
Joint Venture a contractual arrangement whereby
two or more parties undertake an economic activity
which is subject to joint control
Joint control the contractually agreed sharing of
control over an economic activity, when two or more
parties (venturers) must consent to all major
strategic decisions.

Introduction
Venturer a party to a joint venture and has
joint control over that joint venture

Control the power to govern the financial
and operating policies of an economic
activity/enterprise so as to obtain benefits
from it.
Contractual Arrangement
Contract between venturers, minutes of
discussions between venturers,
arrangement in articles or other by-laws of
JV in writing
Deals with:
a) the activity, duration & reporting obligation
b) Appointment of BOD & voting right of the
venturers
c) Capital distribution by venturers
d) Sharing of output, income, expenses or result

Forms of Joint Ventures
1) Jointly controlled operations
2) Jointly controlled assets
3) Jointly controlled entities




Jointly Controlled Operations

when two or more venturers combine their
operations, resources and expertise in order to
produce, market and distribute jointly product
No establishment of a corporation
Each venturers carried out a different manufacturing
process
Each venturers uses his own assets & incurs its own
expenses
Shares of revenue from the selling of product based
on contractual agreement
Eg: aircraft




Jointly controlled operations

Accounting treatment:
No separate accounting records are required for the
JV itself & FS may not be prepared for the JV (no
consolidation procedures required)
A venturer should recognise in its separate financial
statements and cfs:
1. the assets that is controls and liabilities that it
incurs
2. The expenses that it incurs and its share of the
income that it earns from the sale of goods or
services by the JV
Jointly Controlled Assets

involve the joint control and joint ownership by the
venturers of one or more assets contributed to
acquired for the purpose of JV.
No establishment of a corporation
Each venturers takes a share of output and agreed
share of expenses
Eg: oil & gas industry an oil pipeline



Jointly controlled assets
Accounting treatment:
A venturer should recognise in its separate financial
statements and cfs:
1. share of the jointly controlled assets
2. Any liabilities which is has incurred
3. Share of any liabilities incurred jointly
4. Any income from the sale of output of JV and
expenses incurred in JV
5. Any expenses which it has incurred in respect of
interest in JV

Jointly Controlled Entities
involves the establishment of a corporation,
partnership or other entity in which each venturer
has an interest.
The joint venture have its own set of accounts and
FS
The venturers entitled to share of the results of joint
venture
Venturers contribution to JV-investment for venturer
& capital contribution for JV


Jointly controlled entities
Accounting treatment:
In consolidated financial statements, shall report its
interest in JV entities using: (FRS 131)
i) Proportionate consolidation: or
- recognize share of the assets and liabilities that it jointly
control and responsible
- recognize share of the income and expenses of the jointly
controlled entity
ii) Equity method:
- investment in the jointly controlled entities is initially
recorded at cost and the carrying amount is subsequently
adjusted to recognise the venturers share of the profits
and losses of Jointly Controlled Entities.



Exemption from applying Proportionate
consolidation or the Equity method
If interest in JV is acquired and held with a view to its
disposal within 12 months of acquisition (FRS 131).
Reason of operating under severe long-term
restrictions- is not acceptable anymore. Joint control
must be lost before the methods cease to apply.

Jointly controlled entities
Example
Example 5.15 (TLT pg 311-315)
a) Proportionate consolidation method
b) Equity method