INVESTMENTS IN JOINT VENTURES

Investments in Joint Ventures

Scope of this section

15. 1 This section applies to accounting for joint ventures in consolidated financial statements and in the financial statements of an investor that is not a parent but that has a venturer’s interest in one or more joint ventures. Paragraph 9.26 establishes the requirements for accounting for a venturer’s interest in a joint venture in separate financial statements.

Joint ventures defined

15. 2 Joint control is the contractually agreed sharing of control over an economic activity and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers).

15. 3 A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint ventures can take the form of jointly controlled operations, jointly controlled assetsor jointly controlled entities.

Jointly controlled operations

15. 4 The operation of some joint ventures involves the use of the assets and other resources of the venturers instead of the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Each venturer uses its own property, plant and equipment and carries its own inventories. It also incurs its own expenses and liabilitiesand raises its own finance, which represent its own obligations. The joint venture activities may be carried out by the venturer’s employees alongside the venturer’s similar activities. The joint venture agreement usually provides a means by which the revenuefrom the sale of the joint product and any expenses incurred in common are shared among the venturers.

15. 5 In respect of its interests in jointly controlled operations, a venturer shall recognise in its financial statements:
    1. the assets that it controls and the liabilities that it incurs; and
    2. the expenses that it incurs and its share of the incomethat it earns from the sale of goods or services by the joint venture.

Jointly controlled assets

15. 6 Some joint ventures involve the joint control, and often the joint ownership, by the venturers of one or more assets contributed to, or acquired for the purpose of, the joint venture and dedicated to the purposes of the joint venture.

15. 7 In respect of its interest in a jointly controlled asset, a venturer shall recognise in its financial statements:
    1. its share of the jointly controlled assets, classified according to the nature of the assets;
    2. any liabilities that it has incurred;
    3. its share of any liabilities incurred jointly with the other venturers in relation to the joint venture;
    4. any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and
    5. any expenses that it has incurred in respect of its interest in the joint venture.

Jointly controlled entities

15. 8 A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. The entity operates in the same way as other entities, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.

Measurement—accounting policy election

15. 9 A venturer shall account for all of its interests in jointly controlled entities using one of the following:
    1. the cost model in paragraph 15.10;
    2. the equity method in paragraph 15.13; or
    3. the fairvaluemodel in paragraph 15.14.

Cost model

15. 10 A venturer shall measure its investments in jointly controlled entities, other than those for which there is a published price quotation (see paragraph 15.12) at cost less any accumulated impairment losses recognised in accordance with Section 27 Impairment of Assets.

15. 11 The venturer shall recognise distributions received from the investment as income without regard to whether the distributions are from accumulated profits of the jointly controlled entity arising before or after the date of acquisition.

15. 12 A venturer shall measure its investments in jointly controlled entities for which there is a published price quotation using the fair value model (see paragraph 15.14).

Equity method

15. 13 A venturer shall measure its investments in jointly controlled entities by the equity method using the procedures in paragraph 14.8 (substituting ‘joint control’ where that paragraph refers to ‘significant influence’).

Fair value model

15. 14 When an investment in a jointly controlled entity is recognised initially, a venturer shall measure it at transaction price. Transaction price excludes transaction costs.

15. 15 At each reporting date, a venturer shall measure its investments in jointly controlled entities at fair value, with changes in fair value recognised in profitor loss, using the fair value measurementguidance in paragraphs 11.27–11.32. A venturer using the fair value model shall use the cost model for any investment in a jointly controlled entity for which fair value cannot be measured reliably without undue cost or effort.

Transactions between a venturer and a joint venture

15. 16 When a venturer contributes or sells assets to a joint venture, recognitionof any portion of a gainor loss from the transaction shall reflect the substance of the transaction. While the assets are retained by the joint venture, and provided the venturer has transferred the significant risks and rewards of ownership, the venturer shall recognise only that portion of the gain or loss that is attributable to the interests of the other venturers. The venturer shall recognise the full amount of any loss when the contribution or sale provides evidence of an impairment loss.

15. 17 When a venturer purchases assets from a joint venture, the venturer shall not recognise its share of the profits of the joint venture from the transaction until it resells the assets to an independent party. A venturer shall recognise its share of the losses resulting from these transactions in the same way as profits except that losses shall be recognised immediately when they represent an impairment loss.

If investor does not have joint control

15. 18 An investor in a joint venture that does not have joint control shall account for that investment in accordance with Section 11 Basic Financial Instruments, Section 12 Other Financial Instrument Issues or, if it has significant influence in the joint venture, Section 14 Investments in Associates.

Disclosures

15. 19 An entity shall disclose the following:
    1. the accounting policy it uses for recognising its interests in jointly controlled entities;
    2. the carrying amount of investments in jointly controlled entities (see paragraph 4.2(k));
    3. the fair value of investments in jointly controlled entities accounted for using the equity method for which there are published price quotations; and
    4. the aggregate amount of its commitments relating to joint ventures, including its share in the capital commitments that have been incurred jointly with other venturers, as well as its share of the capital commitments of the joint ventures themselves.

15. 20 For jointly controlled entities accounted for in accordance with the equity method, the venturer shall also make the disclosures required by paragraph 14.14 for equity method investments.

15. 21 For jointly controlled entities accounted for in accordance with the fair value model, the venturer shall make the disclosures required by paragraphs 11.41–11.44. If a venturer applies the undue cost or effort exemption in paragraph 15.15 for any jointly controlled entity it shall disclose that fact, the reasons why fair value measurement would involve undue cost or effort and the carrying amount of investments in jointly controlled entities accounted for under the cost model.