Lecture 10 - 1 Lecture 10 1 Accounting for joint ventures...

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Unformatted text preview: 1 Lecture 10 1 Accounting for joint ventures AASB 131 Interests in Joint Ventures 2 LEARNING OBJECTIVES 2 Discuss the defining characteristics of a joint venture Describe and evaluate the one-line and the line- byline methods of accounting for interests in jointly controlled operations and jointly controlled entities Prepare the accounting entries necessary to comply with AASB 131 Describe and complete the note disclosures required by AASB 131 3 Classifications of joint ventures 3 Jointly controlled entity Separate entity formed to undertake joint activity Includes partnerships, trusts, incorporated entities where there is joint control over decision making Jointly controlled operation Involves shared use of assets, other resources and expertise of venturers, but no separate entity formed Jointly controlled assets Involves the joint control by the venturers of one or more assets contributed to the joint venture 4 Joint ventures defined A contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control Joint control is a requirement for an arrangement to be considered to constitute a joint venture for the purposes of AASB 131 Joint control (AASB 131, par. 3) The contractually agreed sharing of control over an economic activity, existing only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers) 5 Joint ventures defined (cont.) AASB 131 (par. 10) Whatever its form, the contractual arrangement is usually in writing and deals with such matters as (a) the activity, duration, and reporting obligations of the joint venture (b) the appointment of the board of directors or equivalent governing body of the joint venture and voting rights of the venturers (c) capital contributions by the venturers, and (d) the sharing by the venturers of the output, income, expenses or results of the joint venture AASB 131 (par. 11) The contractual arrangement establishes joint control over the joint venture. Such a requirement ensures that no single venturer is in a position to control the activity unilaterally 6 General Features 6 Common in the resources sector Also in property development, medical research, and other industries General features include Specific commercial project, e.g., extracting ore from a particular mine Usually has a finite life e.g., the life of the mine or oil field Few participants, usually 2-5 7 General features (cont) 7 Manager usually appointed for day-to-day operations Big decisions are made by the venturers themselves Voting rights will be as per the agreement Contributions are made in agreed upon proportions Participants receive an agreed-upon share of the product or output to trade with on their own account Non-current assets contributed are usually owned by the participants as tenants in common 8...
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Lecture 10 - 1 Lecture 10 1 Accounting for joint ventures...

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