• A joint arrangement is an arrangement over which

two or more parties have joint control with all of the

following characteristics
► The parties are bound by a contractual arrangement
Contractual arrangements define :
o The purpose, activity and duration of joint
arrangement
o The decision making process
o Capital or other contributions required of the parties
o How the parties share assets, liabilities, revenues,
expense or profit/loss relating to joint arrangements
► That contractual arrangement gives two or more of
those parties joint control of the arrangement
 JOINT CONTROL

 Joint control is the contractually agreed

sharing of control of an arrangement,
which exists only when decisions about the
relevant activities require the unanimous
(common) consent of the parties sharing
control.
 JOINT ARRANGEMENTS: JOINT CONTROL

Does the contractual arrangement give all

the parties (or a group of the parties)
control of the arrangement collectively? No Not in
yes
scope of
Do the decisions about the relevant activities
IFRS 11
require the unanimous consent of all the
parties that collectively control the
No
arrangement?
yes
Joint operation

Joint Arrangement
Joint venture
• Joint arrangement is classified as a joint operation
or a joint venture depending on the assessment of
the rights and obligation of the parties to the
arrangement.
1. Joint Operation is joint arrangements where
parties with joint control have the rights to assets &
obligation for liabilities, relating to the
arrangements.
2. Joint Venture is joint arrangements where parties
with joint control have the right to net asset of the
arrangements
 Cont….

 Joint operation is established as unstructured

separate form
 Joint venture is established through
structured separate form.
 Legal form of the separate vehicle
 The terms of the contractual arrangements
 – No separate entity is established to conduct joint
activities
– a joint operator enters into an agreement with one or more joint
operator to produce, market, and distribute a specific product

– each joint operator provides its specific operating

expertise
• each may agree to use their own assets, incur their
own expenses and liabilities, and finance their own
requirements
• Joint venture agreement
– Income sharing
– how shareable costs are to be allocated to joint operators
7
• A joint operator shall recognize in relation to its
interest in joint Operation :
a) Its asset, 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 joint operation
d) Its expense, including its share of any expense incurred
jointly.
NB: The above are accounted for in accordance with the
applicable IFRSs
– This may be a corporation, a partnership, or other
form of organization
– separate entity controls assets of the joint venture,
incurs liabilities and expenses, and earns income
– each venturer usually has an ownership
interest in the venture and is entitled to a share of its
profits or output
– when organized, the individual venturers contribute
cash or other assets in return for an ownership
interest
• contributions are recognized by each venturer as an
investment in the JV 9
Example
1. Joint venture
 Companies A and B form a company, C, to tender for a
public contract with a government to construct a
motorway between two cities. A and B have joint
control of the activities of C.
2. Joint operations
 Company A will construct three bridges needed to
cross rivers on the route; Company B will construct all
of the other elements of the motorway. A and B will
each use their own equipment and employees in the
construction activity
3/31/2023 10
 Joint Venturers Account for their interest in a JV as an
investment and is required to account it using equity
method.
 Under the equity method, on initial recognition the
investment in a joint venture is recognized at cost, and
the carrying amount is increased or decreased to
recognize the investor’s share of the profit or loss of the
investee after the date of acquisition. The investor’s
share of the investee’s profit or loss
is recognized in the investor’s profit or loss. Distributions
received from an investee reduce the carrying amount of
the investment.
 Initial Investment --Investment in JV….xx
Cash/other assets….xx
 Net Income ---------Investment in JV….xx
Income from JV…….xx
 Net Loss -------------Loss from JV……...xx
Investment in JV…...xx
 Dividend ------------Dividend receivable/ cash…..……...xx
Investment in JV…………….…...xx
Equity accounting for a JV ’s losses continues until the investment
is reduced to zero. Additional losses may be recognized as a
liability if an entity has a legal or constructive obligation or made
payments on behalf of the associate or joint venture Recognition
of future share of profits only after share of profits equals losses.
 Arthur Company and Beatrice Company each
invested Br 400,000.00 for a 50% interest in
ARBE joint venture on January 1, 2019. At
December 31, 2019, ARBE reported a Net
Income of Br 300,000.00 and also on December
21, 2019 it declared a dividend of Br 100,000.00.
For Arthur and Beatrice personal account
January 1: Investment in ARBE……..400,000.00
Cash…………..…………400,000.00

December 31: Investment in ARBE……..150,000.00

Income from ARBE…………150,000.00

December 21: Dividend receivable………..50,000.00

Investment in ARBE……..50,000.00
 On 1/3/2014 EEP buys 30% of Entity B for Br120 million(Assume
through this interest EEP gained Joint control over B).
 Entity B’s profit = Br80 million for the year ended 31/12/2014
(including Br66.67million from March to Dec). On 20/12/2014
Entity B declared a dividend of Br100 million. The fair value of
EEP`s share in B at December 31,2019 is Br 115,000,000.00.
 Entity B reported loss of Br400 million for year ended
31/12/2015 and declared no dividend. It also reported profit of
Br300 million for year ended 31/12/2016 and declared no
dividend.
For EEP personal account
1/3/2014-------Investment in B....120,000,000.00
Cash...............120,000,000.00

31/12/2014----Investment in B....20,000,000.00
Income from B....20,000,000.00
(66,666,666.66*0.3)

20/12/2014----Dividend receivable………..30,000,000.00
Investment in ARBE….30,000,000.00
(100,000,000.00*0.3)

At the end of 2014, EEP`s Investment in B account was

Br 110,000,000.00
31/12/2015-----Loss from B……120,000,000.00
Investment in B……..110,000,000.00
Liability to B…………..10,000,000.00
(400,000,000.00*0.3)

31/12/2016----- Investment in B……..80,000,000.00

Liability to B………….10,000,000.00
Income from B……….90,000,000.00
(300,000,000.00*0.3)
1. Entities A and B own 55 per cent and 10 per cent respectively of
the ordinary shares that carry voting rights at a general meeting
of shareholders of entity Z. Strategic decisions in entity Z require
approval by investors holding more than 60 per cent of the
voting power. Is there a Joint control? Discuss.
2. Entity A researches and develops drugs. Entity B manufactures
drugs and promotes them commercially. Entities A and B enter
into a contractual arrangement whereby they equally participate
in the results of research and development and the commercial
promotion of a particular drug that is yet to be invented. In
accordance with the contractual arrangement entity A
undertakes the research and development activities and entity B
undertakes the manufacturing and commercial activities. The
entities share all costs and revenues. Identify this example as JO
or JV? Clearly state your reasons.
4. A joint venture is:
(a) an entity whose equity is owned in equal shares (i.e. 20 per
cent each) by five investors.
(b) an entity whose equity is owned in equal shares (i.e. 25 per
cent each) by four investors.
(c) a contractual arrangement whereby two or more parties
undertake an economic activity.
(d) a contractual arrangement whereby two or more parties
undertake an economic activity that is subject to joint control.
5. Joint control is:
(a) the power to participate in the financial and operating policy
decisions of the investee but is not control or joint control over
those policies.
(b) active participation in the financial and operating policy
decisions of the investee but is not control or joint control over
those policies.
(c) the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities.
(d) the contractually agreed sharing of control over an economic
activity.
6. H Corporation and A company invested $200,000 and $300,000
Respectively in an unincorporated joint venture on January 1,
2012. They agreed to share the profit or loss of the joint venture
in 2:3 ratio. Condensed financial statements for the joint venture
were as follows.
H and A Joint Venture
Income Statement
For year Ended December 31,2012
Revenue $1,250,000
Less: Cost and Expenses 937,5000
Net income $312,500
Division of Net income:
H Corporation $??? = (a)
A Company ??? = (b)
Total $312,500