Lecture 12 Accounting for Joint Ventures

Lecture 12 Accounting for Joint Ventures - ACCT 2542 -...

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1 ACCT 2542 - Corporate Financial Reporting & Analysis Session 2, 2011 Lecture Topic 12 Accounting for Interests in Joint Ventures Lecturer: Diane Mayorga Reading Materials Picker et al: Chapter 29 AASB 131 “Interests in Joint Ventures” Learning Outcomes By the end of this topic, you should be able to: 1. Explain the nature of joint ventures (“JV”) 2. Identify the different forms of a joint venture 3. Account for a venturer’s interest: In a jointly controlled operation (“JCO”) In a jointly controlled asset (“JCA”) In a jointly controlled entity (“JCE”)
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2 Before we start Joint Venture Subsidiary – where a parent entity has the capacity to control the financial and operating policies of another entity – Where this control relationship exists , the consolidation method is used for the preparation of consolidated financial statements to report the financial performance and position of the group of entities. Associates – where the investor has the capacity to significantly influence the financial and operating decisions of another entity, the associate. - the accounting method used to provide information about this form of investment is the equity method , a form of one-line consolidation method where the carrying amount of the investment in the associate is adjusted for investor’s share of movements in the post-acquisition equity of the associate. What is a Joint Venture (JVs)? AASB 131 contains the following definitions: A joint venture is a contractual arrangement whereby 2 or more parties undertake an economic activity that is subject to joint control .” - Contractual arrangement Joint Control - Joint Control “A venturer is a party to a joint venture and has joint control over that joint venture.” An investor in a joint venture is a party to a joint venture and does not have joint control over that joint venture. Both consolidation and equity method are used Joint venture From Wikipedia A joint venture (often abbreviated JV ) is a legal entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity , and they then share in the revenues , expenses , and control of the enterprise . The venture can be for one specific project only , or a continuing business relationship such as the Sony Ericsson joint venture. This is in contrast to a strategic alliance , which involves no equity stake by the participants , and is a much less rigid arrangement.
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3 Adoption of Joint Venture Accounting for joint venture is dealt with in AASB 131 Interest in joint ventures. IAS 31 Interests in joint venture was originally issued by the IASC in 1990 and adopted by the IASB in 2000 the IASC in 1990 and adopted by the IASB in 2000.
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Lecture 12 Accounting for Joint Ventures - ACCT 2542 -...

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