TMI BlogJoint ArrangementsX X X X Extracts X X X X X X X X Extracts X X X X ..... of which two or more parties have joint control. 5 A joint arrangement has the following characteristics: (a) The parties are bound by a contractual arrangement (see paragraphs B2 B4). (b) The contractual arrangement gives two or more of those parties joint control of the arrangement (see paragraphs 7 13). 6 A joint arrangement is either a joint operation or a joint venture. Joint control 7 Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. 8 An entity that is a party to an arrangement shall assess whether the contractual arrangement gives all the parties, or a group of the parties, control of the arrangement collectively. All the parties, or a group of the parties, control the arrangement collectively when they must act together to direct the activities that significantly affect the returns of the arrangement (ie the relevant activities). 9 Once it has been determined that all the parties, or a group of the parties, control the arrangement collectively, joint control exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts up the general contractual terms for undertaking one or more activities. The framework agreement might set out that the parties establish different joint arrangements to deal with specific activities that form part of the agreement. Even though those joint arrangements are related to the same framework agreement, their type might be different if the parties rights and obligations differ when undertaking the different activities dealt with in the framework agreement. Consequently, joint operations and joint ventures can coexist when the parties undertake different activities that form part of the same framework agreement. 19 If facts and circumstances change, an entity shall reassess whether the type of joint arrangement in which it is involved has changed. Financial statements of parties to a joint arrangement Joint operations 20 A joint operator shall recognise in relation to its interest in a joint operation: (a) its assets, including its share of any assets held jointly; (b) its liabilities, including its share of any liabilities incurred jointly; (c) its revenue from the sale of its share of the output arising from the joint operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not have joint control of, a joint venture shall account for its interest in the arrangement in accordance with Ind AS 109, Financial Instruments, unless it has significant influence over the joint venture, in which case it shall account for it in accordance with Ind AS 28. Separate financial statements 26 In its separate financial statements, a joint operator or joint venturer shall account for its interest in: a) a joint operation in accordance with paragraphs 20 22; (b) a joint venture in accordance with paragraph 10 of Ind AS 27, Separate Financial Statements. 27 In its separate financial statements, a party that participates in, but does not have joint control of, a joint arrangement shall account for its interest in: (a) a joint operation in accordance with paragraph 23; (b) a joint venture in accordance with Ind AS 109, unless the entity has significant influence over the joint venture, in which case it shall apply paragraph 10 of Ind AS 27. Appendix A Defined terms This appendix is an integral part of the Ind AS. joint arrangement An arrangement of which two or mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractual arrangement is often, but not always, in writing, usually in the form of a contract or documented discussions between the parties. Statutory mechanisms can also create enforceable arrangements, either on their own or in conjunction with contracts between the parties. B3 When joint arrangements are structured through a separate vehicle (see paragraphs B19 B33), the contractual arrangement, or some aspects of the contractual arrangement, will in some cases be incorporated in the articles, charter or by-laws of the separate vehicle. B4 The contractual arrangement sets out the terms upon which the parties participate in the activity that is the subject of the arrangement. The contractual arrangement generally deals with such matters as: (a) the purpose, activity and duration of the joint arrangement. (b) how the members of the board of directors, or equivalent governing body, of the joint arrangement, are appointed. (c) the decision-making process: the matters requiring decisions from the parties, the voting rights of the parties and the required level of support for those matters. The decision-making process reflected in the contractual arrangement establishes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s agreeing together, that arrangement is not a joint arrangement unless the contractual arrangement specifies which parties (or combination of parties) are required to agree unanimously to decisions about the relevant activities of the arrangement. Application examples Example 1 Assume that three parties establish an arrangement: A has 50 per cent of the voting rights in the arrangement, B has 30 per cent and C has 20 per cent. The contractual arrangement between A, B and C specifies that at least 75 per cent of the voting rights are required to make decisions about the relevant activities of the arrangement. Even though A can block any decision, it does not control the arrangement because it needs the agreement of B. The terms of their contractual arrangement requiring at least 75 per cent of the voting rights to make decisions about the relevant activities imply that A and B have joint control of the arrangement because decisions about the relevant activities of the arrangement cannot be made without both A and B agreeing. Example 2 Assume an arrangement has thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant Ind ASs, such as Ind AS 110, Ind AS 28 or Ind AS 109. Types of joint arrangement (paragraphs 14 19) B12 Joint arrangements are established for a variety of purposes (eg as a way for parties to share costs and risks, or as a way to provide the parties with access to new technology or new markets), and can be established using different structures and legal forms. B13 Some arrangements do not require the activity that is the subject of the arrangement to be undertaken in a separate vehicle. However, other arrangements involve the establishment of a separate vehicle. B14 The classification of joint arrangements required by this Ind AS depends upon the parties rights and obligations arising from the arrangement in the normal course of business. This Ind AS classifies joint arrangements as either joint operations or joint ventures. When an entity has rights to the assets, and obligations for the liabilities, relating to the arrangement, the arrangement is a joint operation. When an entity has rights to the net assets of the arrangement, the arrangement is a joint venture. Paragraphs B16 B33 set out the assessment an entity carries out to determine whether it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnises its share of the output, revenues and expenses in accordance with the contractual arrangement. Joint arrangements structured through a separate vehicle B19 A joint arrangement in which the assets and liabilities relating to the arrangement are held in a separate vehicle can be either a joint venture or a joint operation. B20 Whether a party is a joint operator or a joint venturer depends on the party s rights to the assets, and obligations for the liabilities, relating to the arrangement that are held in the separate vehicle. B21 As stated in paragraph B15, when the parties have structured a joint arrangement in a separate vehicle, the parties need to assess whether the legal form of the separate vehicle, the terms of the contractual arrangement and, when relevant, any other facts and circumstances give them: (a) rights to the assets, and obligations for the liabilities, relating to the arrangement (ie the arrangement is a joint operation); or (b) rights to the net assets of the arrangement (ie the arrangement is a joint venture). The legal form of the separate vehicle B22 The legal form of the separate vehicle is relevant when assessing the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest in the incorporated entity. The incorporation enables the separation of the entity from its owners and as a consequence the assets and liabilities held in the entity are the assets and liabilities of the incorporated entity. In such a case, the assessment of the rights and obligations conferred upon the parties by the legal form of the separate vehicle indicates that the parties have rights to the net assets of the arrangement. However, the parties modify the features of the corporation through their contractual arrangement so that each has an interest in the assets of the incorporated entity and each is liable for the liabilities of the incorporated entity in a specified proportion. Such contractual modifications to the features of a corporation can cause an arrangement to be a joint operation. B27 The following table compares common terms in contractual arrangements of parties to a joint operation and common terms in contractual arrangements of parties to a joint venture. The examples of the contractual terms provided in the following table are not exhaustive. Assessing the terms of the contractual arrangement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that creditors of the joint arrangement do not have rights of recourse against any party with respect to debts or obligations of the arrangement. Revenues, expenses, profit or loss The contractual arrangement establishes the allocation of revenues and expenses on the basis of the relative performance of each party to the joint arrangement. For example, the contractual arrangement might establish that revenues and expenses are allocated on the basis of the capacity that each party uses in a plant operated jointly, which could differ from their ownership interest in the joint arrangement. In other instances, the parties might have agreed to share the profit or loss relating to the arrangement on the basis of a specified proportion such as the parties ownership interest in the arrangement. This would not prevent the arrangement from being a joint operation if the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement. The contractual arrangement establishes each party s share in the profit or loss relating to the activities of the arrangement. Guarantees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arrangement are, in substance, satisfied by the cash flows received from the parties through their purchases of the output. When the parties are substantially the only source of cash flows contributing to the continuity of the operations of the arrangement, this indicates that the parties have an obligation for the liabilities relating to the arrangement. Application example Example 5 Assume that two parties structure a joint arrangement in an incorporated entity (entity C) in which each party has a 50 per cent ownership interest. The purpose of the arrangement is to manufacture materials required by the parties for their own, individual manufacturing processes. The arrangement ensures that the parties operate the facility that produces the materials to the quantity and quality specifications of the parties. The legal form of entity C (an incorporated entity) through which the activities are conducted initially indicates that the assets and liabilities held in entity C are the assets and liabilities of entity C. The contractual arrangement between the parties does not specify that the parties have rights t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a joint venture. B33 The following flow chart reflects the assessment an entity follows to classify an arrangement when the joint arrangement is structured through a separate vehicle: Financial statements of parties to a joint arrangement (paragraphs 21A-22) Accounting for acquisitions of interests in joint operations B33A When an entity acquires an interest in a joint operation in which the activity of the joint operation constitutes a business, as defined in Ind AS 103, it shall apply, to the extent of its share in accordance with paragraph 20, all of the principles on business combinations accounting in Ind AS 103, and other Ind ASs, that do not conflict with the guidance in this Ind AS and disclose the information required by those Ind ASs in relation to business combinations. The principles on business combinations accounting that do not conflict with the guidance in this Ind AS include but are not limited to: (a) measuring identifiable assets and liabilities at fair value, other than items for which exceptions are given in Ind AS 103 and other Ind ASs; (b) recognising acquisition-related costs as expenses in the periods in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int operation, are under the common control of the same ultimate controlling party or parties both before and after the acquisition, and that control is not transitory. For such transactions, accounting specified in Appendix C of Ind AS 103 shall be applicable. Accounting for sales or contributions of assets to a joint operation B34 When an entity enters into a transaction with a joint operation in which it is a joint operator, such as a sale or contribution of assets, it is conducting the transaction with the other parties to the joint operation and, as such, the joint operator shall recognise gains and losses resulting from such a transaction only to the extent of the other parties interests in the joint operation. B35 When such transactions provide evidence of a reduction in the net realisable value of the assets to be sold or contributed to the joint operation, or of an impairment loss of those assets, those losses shall be recognised fully by the joint operator. Accounting for purchases of assets from a joint operation B36 When an entity enters into a transaction with a joint operation in which it is a joint operator, such as a purchase of assets, it shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness combinations under common control. Also see in PDF Indian Accounting Standard (Ind AS) 111 Joint Arrangements *********** 1. Inserted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VIII)] dated 30-03-2019 w.e.f. 01-04-2019 2. Inserted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VIII)] dated 30-03-2019 w.e.f. 01-04-2019 3. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VIII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as 1 Appendix C of IFRS 11 dealing with effective date, transition and withdrawal of other IFRSs has not been included in Ind AS 111, due to the following reasons: (i) Effective date is not relevant as the date of application will be notified under the Companies Act. (ii) Transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards. (iii) The paragraph which relate to withdrawal of other IFRSs is not relevant. 4. Substituted vide NOTIFICATION NO. G.S.R. 419(E) dated ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
