PAS 31 - INTERESTS IN JOINT INTERESTS VENTURES VENTURES PAS...

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Unformatted text preview: INTERESTS IN JOINT INTERESTS VENTURES VENTURES PAS 31 (January 1, 2005) 1 Structure & content Preface to PAS 31 PAS 31 proper 2 Scope Applies in accounting for interests in joint Applies ventures and reporting of joint venture assets, liabilities, income and expenses in FS of the venturers and investors FS Not applied in accounting for venturers’ Not interest in jointly controlled entities held by interest Venture capital organizations Mutual funds, unit trusts and similar Mutual entities 3 Definitions JV – a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Venturer – a party to a joint venture and has joint control over that joint venture Investor in a joint venture – a party to a joint venture and does not have joint control over that joint venture Control – the power to govern the financial and operating policies of an activity so as to obtain benefits from it Joint control – the contractually agreed sharing of control over an economic activity such that no individual contracting party has control 4 Forms Jointly controlled operations Jointly controlled assets Jointly controlled entities 5 Jointly controlled operations Separate entity is not established. Each venturer records its own assets, Each liabilities and expenses and share of venture income venture No consolidation procedures required 6 Jointly controlled assets The venturers jointly control and often own The the assets the Each venturer takes a share of the assets’ Each output, and bears a share of expenses output, A separate entity is not required to be separate created created FS of the venturer shows its share of the FS joint assets, liabilities incurred directly and share of joint liabilities and income from the use or sale of the assets 7 Jointly controlled entities A separate entity is created Each venturer contributes The entity keeps its own accounting The records and prepares FS records The venturer reports its interest in the joint The venture in its own FS either under venture proportionate consolidation or proportionate the equity method 8 Proportionate consolidation Under proportionate consolidation, the balance sheet of the Under venturer includes its share of the assets that it controls jointly and its share of the liabilities for which it is jointly responsible. The income statement of the venturer includes its share of the income and expenses of the jointly controlled entity. controlled PAS 31 allows for the use of two different reporting formats PAS for presenting proportionate consolidation: - the venturer may combine its share of each of the assets, liabilities, income and expenses of the jointly controlled entity with the similar items, line by line, in its financial statements; or - the venturer may include separate line items for its share of the assets, liabilities, income and expenses of the jointly controlled entity in its financial statements. 9 Exceptions to proportionate consolidation & equity method Interests in the jointly controlled entities Interests that are classified as held for sale in accordance with PFRS 5 (apply PFRS 5) accordance Jointly controlled entity becomes a Jointly subsidiary of a venturer (apply PAS 27) subsidiary Jointly controlled entity becomes an Jointly associate of a venturer (PAS 28) associate 10 Transactions between a venturer and a JV Transactions If a venturer contributes or sells an asset If to a jointly controlled entity, while the assets are retained by the joint venture, provided that the venturer has transferred the risks and rewards of ownership, it should recognize only the proportion of the gain attributable to the other venturers. The venturer should recognize the full amount of any loss incurred when it is indicative of a permanent decline in value indicative 11 Transactions between a venturer and a JV Transactions The requirements for recognition of gains and The losses apply equally to non-monetary contributions unless the gain or loss cannot be measured, or the other venturers contribute similar assets. Unrealized gains or losses should be eliminated against the underlying assets (proportionate consolidation) or against the investment (equity method) method) When a venturer purchases assets from a jointly When controlled entity, it should not recognize its share of the gain until it resells the asset to an independent party. Losses should be recognized if they are indicative of a permanent decline in value 12 FS of an investor An investor in a joint venture who does not An have joint control should report its interest in a joint venture in its consolidated financial statements either - in accordance with PAS 28 Investments in Associates – only if the investor has significant influence in the joint venture (using equity method); or (using or - in accordance with PAS 39 Financial Instruments: Recognition and Measurement (FVTPL or AFS) (FVTPL 13 Partial disposals of joint ventures Partial If an investor loses joint control of a jointly controlled entity, it derecognizes that investment and recognizes in profit or loss the difference between the sum of the proceeds received and any retained interest, and the carrying amount of the investment in the jointly controlled entity at the date significant influence is lost 14 Disclosure A venturer is required to disclose: Information about contingent liabilities relating to its interest Information in a joint venture in Information about commitments relating to its interests in Information joint ventures A listing and description of interests in significant joint ventures and the proportion of ownership interest held in jointly controlled entities. A venturer that recognizes its interests in jointly controlled entities using the line-by-line reporting format for proportionate consolidation or the equity method shall disclose the aggregate amounts of each of current assets, long-term assets, current liabilities, long-term liabilities, income, and expenses related to its interests in joint ventures joint The method it uses to recognize its interests in jointly The 15 controlled entities Illustration Illustration Note nos. 3.6, 3.17.2, 10.6, 21, 22, 43.2, 50.1 of the model FS Jointly controlled assets 16 Thank you! Thank 17 ...
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