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AS 31 Interests In Joint Ventures

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Overview
IAS 31 Interests in Joint Ventures sets out the accounting for an entity's interests in various
forms of joint ventures jointly controlled o!erations" jointly controlled assets" and jointly
controlled entities# $he standard !ermits jointly controlled entities to be accounted for using
either the e%uity method or by !ro!ortionate consolidation#
IAS 31 was reissued in &ecember '((3" a!!lies to annual !eriods beginning on or after 1
)anuary '((*" and is su!erseded by I+,S 11 Joint Arrangements and I+,S 1' Disclosure of
Interests in Other Entities with effect from annual !eriods beginning on or after 1 )anuary '(13#
History of IAS 31
&ecember 1-.- /0!osure &raft /3* Financial Reporting of Interests in Joint Ventures
&ecember 1--( IAS 31 Financial Reporting of Interests in Joint Ventures
1 )anuary 1--' /ffective date of IAS 31 11--(2
1--3 IAS 31 was reformatted
&ecember 1--. IAS 31 was revised by IAS 3- effective 1 )anuary '((1
1. &ecember '((3 ,evised version of IAS 31 issued by the IAS4
1 )anuary '((* /ffective date of IAS 31 1,evised '((32
13 Se!tember '((5
/0!osure &raft /& - Joint Arrangements issued# 6ro!oses to re!lace IAS 31
with a new standard titled )oint Arrangements#
1( )anuary '((.
Some significant revisions of IAS 31 were ado!ted as a result of the 4usiness
7ombinations 6hase II 6roject relating to loss of joint control
'' May '((.
IAS 31 amended for Annual Improvements to IFRSs 2007 for certain
disclosures and reversals of im!airment losses 1e%uity method2
1 )anuary '((- /ffective date of the May '((. revisions to IAS 31
1 )uly '((- /ffective date of the )anuary '((. revisions to IAS 31
1' May '(11
IAS 31 is superseded by IFRS 11 Joint Arrangements and IFRS 12
Disclosure of Interests in Other Entities effective 1 January 213
Re!ated Interpretations
SI7813 Jointl !ontrolle" Entities # $on%&onetar !ontri'utions ' Venturers(
Superseded by IFRS 11 Joint Arrangements effective 1 January 213
Su""ary of IAS 31
Scope
IAS 31 a!!lies to accounting for all interests in joint ventures and the re!orting of joint venture
assets" liabilities" income" and e0!enses in the financial statements of venturers and investors"
regardless of the structures or forms under which the joint venture activities take !lace" e0ce!t
for investments held by a venture ca!ital organisation" mutual fund" unit trust" and similar entity
that 1by election or re%uirement2 are accounted for as under IAS 3- at fair value with fair value
changes recognised in !rofit or loss# 9IAS 31#1:
#ey definitions $IAS 31%3&
Joint venture' a contractual arrangement whereby two or more !arties undertake an economic
activity that is subject to joint control#
Venturer' a !arty to a joint venture and has joint control over that joint venture#
Investor in a (oint venture' a !arty to a joint venture and does not have joint control over that
joint venture#
)ontro!' the !ower to govern the financial and o!erating !olicies of an activity so as to obtain
benefits from it#
Joint contro!' the contractually agreed sharing of control over an economic activity# )oint
control e0ists only when the strategic financial and o!erating decisions relating to the activity
re%uire the unanimous consent of the venturers#
Joint!y contro!!ed operations
)ointly controlled o!erations involve the use of assets and other resources of the venturers rather
than the establishment of a se!arate entity# /ach venturer uses its own assets" incurs its own
e0!enses and liabilities" and raises its own finance# 9IAS 31#13:
IAS 31 re%uires that the venturer should recognise in its financial statements the assets that it
controls" the liabilities that it incurs" the e0!enses that it incurs" and its share of the income from
the sale of goods or services by the joint venture# 9IAS 31#1*:
Joint!y contro!!ed assets
)ointly controlled assets involve the joint control" and often the joint ownershi!" of assets
dedicated to the joint venture# /ach venturer may take a share of the out!ut from the assets and
each bears a share of the e0!enses incurred# 9IAS 31#1.:
IAS 31 re%uires that the venturer should recognise in its financial statements its share of the joint
assets" any liabilities that it has incurred directly and its share of any liabilities incurred jointly
with the other venturers" income from the sale or use of its share of the out!ut of the joint
venture" its share of e0!enses incurred by the joint venture and e0!enses incurred directly in
res!ect of its interest in the joint venture# 9IAS 31#'1:
Joint!y contro!!ed entities
A jointly controlled entity is a cor!oration" !artnershi!" or other entity in which two or more
venturers have an interest" under a contractual arrangement that establishes joint control over the
entity# 9IAS 31#'3:
/ach venturer usually contributes cash or other resources to the jointly controlled entity# $hose
contributions are included in the accounting records of the venturer and recognised in the
venturer's financial statements as an investment in the jointly controlled entity# 9IAS 31#'-:
IAS 31 allows two treatments of accounting for an investment in jointly controlled entities ;
e0ce!t as noted below
!ro!ortionate consolidation 9IAS 31#3(:
e%uity method of accounting 9IAS 31#3.:
6ro!ortionate consolidation or e%uity method are not re%uired in the following e0ce!tional
circumstances 9IAS 31#18':
An investment in a jointly controlled entity that is held by a venture ca!ital organisation
or mutual fund 1or similar entity2 and that u!on initial recognition is designated as held
for trading under IAS 3-# <nder IAS 3-" those investments are measured at fair value
with fair value changes recognised in !rofit or loss#
$he interest is classified as held for sale in accordance with I+,S *#
A !arent that is e0em!ted from !re!aring consolidated financial statements by !aragra!h
1( of IAS '5 may !re!are se!arate financial statements as its !rimary financial
statements# In those se!arate statements" the investment in the jointly controlled entity
may be accounted for by the cost method or under IAS 3-#
An investor in a jointly controlled entity need not use !ro!ortionate consolidation or the
e%uity method if all of the following four conditions are met
1# the venturer is itself a wholly8owned subsidiary" or is a !artially8owned subsidiary
of another entity and its other owners" including those not otherwise entitled to
vote" have been informed about" and do not object to" the venturer not a!!lying
!ro!ortionate consolidation or the e%uity method=
'# the venturer's debt or e%uity instruments are not traded in a !ublic market=
3# the venturer did not file" nor is it in the !rocess of filing" its financial statements
with a securities commission or other regulatory organisation for the !ur!ose of
issuing any class of instruments in a !ublic market= and
3# the ultimate or any intermediate !arent of the venturer !roduces consolidated
financial statements available for !ublic use that com!ly with International
+inancial ,e!orting Standards#
*roportionate conso!idation
<nder !ro!ortionate consolidation" the balance sheet of the venturer includes its share of the
assets that it controls jointly and its share of the liabilities for which it is jointly res!onsible# $he
income statement of the venturer includes its share of the income and e0!enses of the jointly
controlled entity# 9IAS 31#33:
IAS 31 allows for the use of two different re!orting formats for !resenting !ro!ortionate
consolidation 9IAS 31#33:
$he venturer may combine its share of each of the assets" liabilities" income and e0!enses
of the jointly controlled entity with the similar items" line by line" in its financial
statements= or
$he venturer may include se!arate line items for its share of the assets" liabilities" income
and e0!enses of the jointly controlled entity in its financial statements#
+,uity "et-od
6rocedures for a!!lying the e%uity method are the same as those described in IAS '.
Investments in Associates#
Separate financia! state"ents of t-e venturer
In the se!arate financial statements of the venturer" its interests in the joint venture should be
9IAS 31#3>:
accounted for at cost= or
accounted for under IAS 3- +inancial Instruments ,ecognition and Measurement#
.ransactions between a venturer and a (oint venture
If a venturer contributes or sells an asset to a jointly controlled entity" while the assets are
retained by the joint venture" !rovided that the venturer has transferred the risks and rewards of
ownershi!" it should recognise only the !ro!ortion of the gain attributable to the other venturers#
$he venturer should recognise the full amount of any loss incurred when the contribution or sale
!rovides evidence of a reduction in the net realisable value of current assets or an im!airment
loss# 9IAS 31#3.:
$he re%uirements for recognition of gains and losses a!!ly e%ually to non8monetary
contributions unless the gain or loss cannot be measured" or the other venturers contribute similar
assets# <nrealised gains or losses should be eliminated against the underlying assets
1!ro!ortionate consolidation2 or against the investment 1e%uity method2# 9SI7813:
?hen a venturer !urchases assets from a jointly controlled entity" it should not recognise its
share of the gain until it resells the asset to an inde!endent !arty# @osses should be recognised
when they re!resent a reduction in the net realisable value of current assets or an im!airment
loss# 9IAS 31#3-:
Financia! state"ents of an investor
An investor in a joint venture who does not have joint control should re!ort its interest in a joint
venture in its consolidated financial statements either 9IAS 31#*1:
in accordance with IAS '. Investments in Associates ; only if the investor has significant
influence in the joint venture= or
in accordance with IAS 3- +inancial Instruments ,ecognition and Measurement#
*artia! disposa!s of (oint ventures
If an investor loses joint control of a jointly controlled entity" it derecognises that investment and
recognises in !rofit or loss the difference between the sum of the !roceeds received and any
retained interest" and the carrying amount of the investment in the jointly controlled entity at the
date when joint control is lost# 9IAS 31#3*:
/isc!osure
A venturer is re%uired to disclose
Information about contingent liabilities relating to its interest in a joint venture# 9IAS
31#*3:
Information about commitments relating to its interests in joint ventures# 9IAS 31#**:
A listing and descri!tion of interests in significant joint ventures and the !ro!ortion of
ownershi! interest held in jointly controlled entities# A venturer that recognises its
interests in jointly controlled entities using the line8by8line re!orting format for
!ro!ortionate consolidation or the e%uity method shall disclose the aggregate amounts of
each of current assets" long8term assets" current liabilities" long8term liabilities" income"
and e0!enses related to its interests in joint ventures# 9IAS 31#*>:
$he method it uses to recognise its interests in jointly controlled entities# 9IAS 31#*5:
Aenture ca!ital organisations or mutual funds that account for their interests in jointly controlled
entities in accordance with IAS 3- must make the disclosures re%uired by IAS 31#**8*># 9IAS
31#1: