ex29.5 JV - A jointly controlled operation, as per para 13...

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Unformatted text preview: A jointly controlled operation, as per para 13 of AASB 131, involves the use of the assets and other resources of the venturers rather than the establishment of a corporation, partnership or other entity. As there is no investment in an entity, the equity method of accounting cannot be used. As per para 15 of AASB 131, the accounting for jointly controlled operations involves recognition in the financial statements of the venturer the assets it controls, the liabilities it incurs, the expenses it incurs and its share of income from the sale of output. A jointly controlled entity involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. Venturers may share profits or outputs. According to para 38 of AASB 131, a venturer shall recognise its interest in a jointly controlled entity using the equity method. Subsidiary: a parent entity controls the financial and operating policies of a subsidiary. Associate: an investor has significant influence over the policies of an associate Joint venture: a joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Partnership: would normally be a joint venture, in particular, a jointly controlled entity. Accounting for subsidiaries requires the parent to apply the consolidation method. There are no effects on the individual records of either the parent or the subsidiary. The consolidated statements include all the assets, liabilities and income of the subsidiary on a line-by-line basis. This method is required for such relationships because of the fact that the parent controls the subsidiary. The parent is then accounting for its management of the subsidiary. Where the equity method is used for associates and joint venture entities (including partnerships), this can be described as a one-line consolidation method. This results in a lower form of disclosure than required under the application of the consolidation method. It is argued that, as the investor does not have control over these entities there is not the same demand for full consolidation of these entities. However, because the investor has some form of influence over these entities there needs to be more disclosure than that available by application of the cost or fair value method. Disclosures required under the equity method are then a “medium” level of disclosure. Under AASB 131 the equipment and working capital acquired are jointly controlled assets. Any liabilities incurred are jointly controlled liabilities. Each venturer will recognise its share of these assets and liabilities in its records as per para 21 of AASB 131: Under AASB 131 this is a jointly controlled entity. Para 24 of AASB 131 states that a jointly controlled entity involves establishing a corporation, partnership or other entity in which each venturer has an interest. In this case the assets of the venture belong to the entity rather than each venturer having an undivided interest in the assets. In this case the output is distributed to each venturer – presumably at cost of production. No profit or loss is then recorded by the entity itself. Para 30 of AASB 131 allows the use of either the proportionate consolidation method or the equity method. Note that under ED 157 it is proposed that proportionate consolidation be removed. In this case as no profit is generated by the joint venture, if the equity method is chosen, the investment in the joint venture remains unchanged. Disclosure would be way of note, in particular the provision of the information in para. 56 of AASB 131. Under AASB 131 this is a jointly controlled entity. Para 24 of AASB 131 states that a jointly controlled entity involves establishing a corporation, partnership or other entity in which each venturer has an interest. In this case the assets of the venture belong to the entity rather than each venturer having an undivided interest in the assets. In this case the output is sold to each venturer at a fixed price, with a profit or loss then being recorded by the joint venture entity itself. Para 30 of AASB 131 allows the use of either the proportionate consolidation method or the equity method. Note that under ED 157 it is proposed that proportionate consolidation be removed. If the equity method is used, the investment in the joint venture is adjusted for the profits/losses incurred by the joint venture entity. Disclosure would also be way of note, in particular the provision of the information in para. 56 of AASB 131. $’000 Cash in JV Machinery in JV Cash Dr Dr Cr 1 000 1 000 Cash in JV Cash Dr Cr 3 000 Machinery in JV Supplies in JV Work in Progress in JV Inventory Operating Expenses Accrued Wages in JV Creditors in JV Cash in JV Dr Dr Dr Dr Dr Cr Cr Cr 400 200 1 000 2 420 100 Inventory – Depreciation Expense Dr Accum Depreciation in JV Cr $’000 (2 000/2) (2 000/2) 280 2 000 3 000 20 150 3 950 (2800/2 – 1 000) (400/2) (2 000/2) (4 840/2) (200/2) (40/2) (300/2) (100/2 – 4 000) (20% x 1 400) 280 $’000 Cash in JV Machinery in JV Carrying Amount of Machinery Sold Proceeds – machinery sale Machinery Dr Dr 1 000 950 Dr Cr Cr 950 Cash in JV Cash Dr Cr $’000 (2 000/2) (1 900/2) 3 000 1 000 1 900 3 000 (2 000/2) Machinery in JV Supplies in JV Work in Progress in JV Inventory Operating Expenses Accrued Wages in JV Creditors in JV Cash in JV Dr Dr Dr Dr Dr Cr Cr Cr 400 200 1 000 2 420 100 Inventory – Depreciation Expense Accum Depreciation in JV Dr Cr 270 20 150 3 950 (2800/2 – 1 000) (400/2) (2 000/2) (4 840/2) (200/2) (40/2) (300/2) (100/2 – 4 000) (20%(400 + 950) 270 $’000 Cash in JV Machinery in JV Carrying Amount of Machinery Sold Proceeds – machinery sale Machinery Dr Dr 1 000 950 Dr Cr Cr 950 Cash in JV Cash Dr Cr 3 000 Machinery in JV Supplies in JV Work in Progress in JV Inventory Dr Dr Dr Dr 400 200 1 000 2 700 Other Expenses Accum Depreciation in JV Accrued Wages in JV Creditors in JV Cash in JV Dr Cr Cr Cr Cr $’000 100 1 000 1 900 2 700 1 000 3 700 (2 000/2) 3 000 280 20 150 3 950 Accum Depreciation in JV Dr 10 Inventory Cr Work in Progress in JV Cr (Adjustment for depreciation being based on carrying amount rather than fair value) Working Inventory Work in Progress in JV (2 000/2) (1 900/2) 73% 27% (2800/2 – 1 000) (400/2) (2 000/2) (4 840/2) + 280 depn) ??? (200/2) (1/2 x 20% x 2800) (40/2) (300/2) (100/2 – 4 000) 20% (2000/2-1900/2) 7 3 7 3 10 ...
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This note was uploaded on 12/06/2011 for the course ACCT 2542 taught by Professor Knapp during the One '11 term at University of New South Wales.

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