No joint liability unless agreed Each acts as an agent for the others making

No joint liability unless agreed each acts as an

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agreed. No joint liability unless agreed. Each acts as an agent for the others, making each partner jointly an severally liable finance Each arranges for its share of the required finance. No internal funds as the entire product is taken and sold by the participants. Can be internally financed if profits are retained. External finance can be arranged by the partnership. taxation Each includes in its own tax return its share of income and deductions attributable to the share of the venture’s production. A partnership tax return is lodged. Each partner then includes its own share of the partnership’s taxable income in its own return. Constituent documents Being a contractual arrangement, extensive documentation is required to specify the rights and obligations of each participant. No documentation is required. Management and control Control over strategic financial and operating decisions is exercised jointly by the participants. Manager may be appointed to act as agent for each participant. Management matters are agreed upon , control is usually exercised in proportion to capital contributions. Accounting reports Usually special-purpose reports are prepared by the manager for the participants. Accounting reports will show the costs of production, costs of assets acquired and any liablilities incurred on behalf of the participants. The partnership statements of comprehensive income and financial position are drawn up as part of internal management responsibilities. Joint venture Accounting Treatment Jointly controlled operation/ass et para.15/para. 21 Venturer to recognise its interest in each asset employed, each liability arising, expenses arising and revenues from the sale of its share of the output of the joint venture. (Otherwise known as the line-by-line method) Jointly controlled entity Para 30 Venturer has the choice to line by line method or the equity accounting method
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close to perfect but is likely to be economically sub-optimal in other cases . 2 preferred by management because of the relative appeal of the equity method of accounting . The equity method has the same statement of comprehensive income effects as a proportional consolidation without requiring any additional liabilities to be recognised in the statement of financial position. Evaluation of the line by line method: Against: A venturer’s interest in a asset does not meet the definition of asset due to control issues. Only controls an interest in an asset. Can distort the venturer’s financial statements as controlled assets are combined with joint venture assets and effects ratios. For : imposes financial performance of joint venture into venturer’s financial statements. For example, total cost of production for a process. Reflects the substance and economic reality of a venturer’s interest in a joint venturer.
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