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Joint Arrangements

Ind AS - 111 - B. Indian Accounting Standards (Ind AS) - Companies Law - Ind AS - 111 - Indian Accounting Standard (Ind AS) 111 (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.) Objective 1 The objective of this Indian Accounting Standard (Ind AS) is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (ie .....

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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 d .....

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ities). 9 Once it has been determined that all the parties, or a group of the parties, control the arrangement collectively, joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that control the arrangement collectively. 10 In a joint arrangement, no single party controls the arrangement on its own. A party with joint control of an arrangement can prevent any of the other parties, or a group of the parties, from controlling the arran .....

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all make this assessment by considering all facts and circumstances (see paragraphs B5-B11). 13 If facts and circumstances change, an entity shall reassess whether it still has joint control of the arrangement. Types of joint arrangement 14 An entity shall determine the type of joint arrangement in which it is involved. The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement. 15 A joint operation .....

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nt operation or a joint venture. An entity shall determine the type of joint arrangement in which it is involved by considering its rights and obligations arising from the arrangement. An entity assesses its rights and obligations by considering the structure and legal form of the arrangement, the terms agreed by the parties in the contractual arrangement and, when relevant, other facts and circumstances (see paragraphs B12- B33). 18 Sometimes the parties are bound by a framework agreement that .....

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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 .....

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es and expenses. 21A 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 that is required in those Ind ASs in relation to business combinations. This .....

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rticipates in, but does not have joint control of, a joint operation shall also account for its interest in the arrangement in accordance with paragraphs 20-22 if that party has rights to the assets, and obligations for the liabilities, relating to the joint operation. If a party that participates in, but does not have joint control of, a joint operation does not have rights to the assets, and obligations for the liabilities, relating to that joint operation, it shall account for its interest in .....

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ll 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, Separa .....

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angement An arrangement of which two or more parties have joint control. joint control which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. joint operation 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 joint operator A party to a joint operation that has joint control of that joint operation. joint .....

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sed by statute, regardless of whether those entities have a legal personality. The following terms are defined in Ind AS 27, Ind AS 28 or Ind AS 110, Consolidated Financial Statements, and are used in this Ind AS with the meanings specified in those Ind ASs: control of an investee equity method power protective rights relevant activities separate financial statements significant influence. Appendix B Application guidance This appendix is an integral part of the Ind AS. It describes the applicati .....

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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 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 c .....

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d the required level of support for those matters. The decision-making process reflected in the contractual arrangement establishes joint control of the arrangement (see paragraphs B5-B11). (d) the capital or other contributions required of the parties. (e) how the parties share assets, liabilities, revenues, expenses or profit or loss relating to the joint arrangement. Joint Control (paragraphs 7-13) B5 In assessing whether an entity has joint control of an arrangement, an entity shall assess f .....

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ffect the returns of the arrangement (ie the relevant activities), the parties control the arrangement collectively. B6 After concluding that all the parties, or a group of the parties, control the arrangement collectively, an entity shall assess whether it has joint control of the arrangement. Joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that collectively control the arrangement. Assessing whether the arrangement is jointly .....

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ake decisions about the relevant activities. In this case, the parties have implicitly agreed that they have joint control of the arrangement because decisions about the relevant activities cannot be made without both parties agreeing. B8 In other circumstances, the contractual arrangement requires a minimum proportion of the voting rights to make decisions about the relevant activities. When that minimum required proportion of the voting rights can be achieved by more than one combination of th .....

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t 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 arrangeme .....

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In this example, A, B and C collectively control the arrangement. However, there is more than one combination of parties that can agree to reach 75 per cent of the voting rights (ie either A and B or A and C). In such a situation, to be a joint arrangement the contractual arrangement between the parties would need to specify which combination of the parties is required to agree unanimously to decisions about the relevant activities of the arrangement. Example 3 Assume an arrangement in which A .....

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nt can prevent any of the other parties, or a group of the parties, from making unilateral decisions (about the relevant activities) without its consent. If the requirement for unanimous consent relates only to decisions that give a party protective rights and not to decisions about the relevant activities of an arrangement, that party is not a party with joint control of the arrangement. B10 A contractual arrangement might include clauses on the resolution of disputes, such as arbitration. Thes .....

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aragraphs 14-19) B12 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 requi .....

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ies out to determine whether it has an interest in a joint operation or an interest in a joint venture. Classification of a joint arrangement B15 As stated in paragraph B14, the classification of requires the parties to assess their rights and obligations arising from the arrangement. When making that assessment, an entity shall consider the following: (a) the structure of the joint arrangement (see paragraphs B16-B21). (b) when the joint arrangement is structured through a separate vehicle: (i) .....

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the liabilities, relating to the arrangement, and the parties rights to the corresponding revenues and obligations for the corresponding expenses. B17 The contractual arrangement often describes the nature of the activities that are the subject of the arrangement and how the parties intend to undertake those activities together. For example, the parties to a joint arrangement could agree to manufacture a product together, with each party being responsible for a specific task and each using its .....

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hare and operate an asset together. In such a case, the contractual arrangement establishes the parties rights to the asset that is operated jointly, and how output or revenue from the asset and operating costs are shared among the parties. Each joint operator accounts for its share of the joint asset and its agreed share of any liabilities, and recognises its share of the output, revenues and expenses in accordance with the contractual arrangement. structured through a separate vehicle B19 A jo .....

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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 .....

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its own right (ie the assets and liabilities held in the separate vehicle are the assets and liabilities of the separate vehicle and not the assets and liabilities of the parties). 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 arrangement is a joint venture. However, the terms agreed by the parties in their contractual arrangement (see paragraphs B25-B28) and, when relevant, other facts and cir .....

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te vehicle (ie the assets and liabilities held in the separate vehicle are the parties assets and liabilities). Assessing the terms of the contractual arrangement B25 In many cases, the rights and obligations agreed to by the parties in their contractual arrangements are consistent, or do not conflict, with the rights and obligations conferred on the parties by the legal form of the separate vehicle in which the arrangement has been structured. B26 In other cases, the parties use the contractual .....

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nd 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 p .....

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actual arrangement The contractual arrangement provides the parties to the joint arrangement with rights to the assets, and obligations for the liabilities, relating to the arrangement. The contractual arrangement provides the parties to the joint arrangement with rights to the net assets of the arrangement (ie it is the separate vehicle, not the parties, that has rights to the assets, and obligations for the liabilities, relating to the arrangement). Rights to assets The contractual arrangement .....

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ngement s assets. The parties have no interests (ie no rights, title or ownership) in the assets of the arrangement. Obligations for liabilities The contractual arrangement establishes that the parties to the joint arrangement share all liabilities, obligations, costs and expenses in a specified proportion (eg in proportion to the parties ownership interest in the arrangement or in proportion to the activity carried out through the arrangement that is directly attributed to them). The contractua .....

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or claims raised by third parties. The contractual arrangement states 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 .....

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e 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 The parties to are often required to provide guarantees to third parties that, for example, receive a service from, or provide financing to, the joint arrangement. The provision of such guarantees, or the commitment by the parties to provide them, does not, by itself, determine that the joint arrangement is a joint .....

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her facts and circumstances (paragraphs B29- B33) for the purposes of classifying the joint arrangement. Assessing other facts and circumstances B29 When the terms of the contractual arrangement do not specify that the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement, the parties shall consider other facts and circumstances to assess whether the arrangement is a joint operation or a joint venture. B30 A joint arrangement might be structured in a .....

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o the arrangement. B31 When the activities of an arrangement are primarily designed for the provision of output to the parties, this indicates that the parties have rights to substantially all the economic benefits of the assets of the arrangement. The parties to such arrangements often ensure their access to the outputs provided by the arrangement by preventing the arrangement from selling output to third parties. B32 The effect of an arrangement with such a design and purpose is that the liabi .....

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) 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 en .....

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50:50. Entity C cannot sell any of the output to third parties, unless this is approved by the two parties to the arrangement. Because the purpose of the arrangement is to provide the parties with output they require, such sales to third parties are expected to be uncommon and not material. The price of the output sold to the parties is set by both parties at a level that is designed to cover the costs of production and administrative expenses incurred by entity C. On the basis of this operating .....

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eans that the parties are consuming, and therefore have rights to, all the economic benefits of the assets of entity C. These facts and circumstances indicate that the arrangement is a joint operation. The conclusion about the classification of the joint arrangement in these circumstances would not change if, instead of the parties using their share of the output themselves in a subsequent manufacturing process, the parties sold their share of the output to third parties. If the parties changed .....

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nt 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 i .....

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osts as expenses in the periods in which the costs are incurred and the services are received, with the exception that the costs to issue debt or equity securities are recognised in accordance with Ind AS 32 Financial Instruments: Presentation and Ind AS109; (c) recognising deferred tax assets and deferred tax liabilities that arise from the initial recognition of assets or liabilities, except for deferred tax liabilities that arise from the initial recognition of goodwill, as required by Ind AS .....

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business combination. B33B Paragraphs 21A and B33A also apply to the formation of a joint operation if, and only if, an existing business, as defined in Ind AS 103, is contributed to the joint operation on its formation by one of the parties that participate in the joint operation. However, those paragraphs do not apply to the formation of a joint operation if all of the parties that participate in the joint operation only contribute assets or groups of assets that do not constitute businesses t .....

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hen the parties sharing joint control, including the entity acquiring the interest in the joint 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 .....

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ose 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 shall not recognise its share of the gains and losses until it resells those assets to a third party. B37 When such transactions provide evidence of a reduction in the net realisable value of the assets to be purchased or of an impair .....

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