ACCOUNTING FOR

JOINT ARRANGEMENTS

Objectives
To explain the types of joint
arrangement and its characteristics
To differentiate between the financial
reporting methods of joint
arrangements book and investors
book

Introduction
MFRS 11 Joint arrangement
Joint arrangement an arrangement whereby two
or more parties have joint control (para 4).
Joint control the contractually agreed sharing of
control of an arrangement, which exists only when
decisions about the relevant activities require the
unanimous consent of the parties sharing control
(para 7)

No single party controls the arrangement

on its own (para 10)

Example 1
A Bhd and B Bhd establish business operation, known as ABC Bhd. A Bhd and B
Bhd each have 50% of the voting rights. Assume that the contractual arrangement
specifies that the majority (> 50%)of the voting rights are required to direct the
relevant activities of ABC Bhd.
Question: Is this a joint arrangement?
Answers:
Joint arrangement
An arrangement whereby two or more parties have joint control (para
4).
Two parties = A Bhd and B Bhd
Is there any joint control?
The decisions about the relevant activities require the unanimous consent of
the parties sharing control.
Decisions about the relevant activities of ABC Bhd cannot be made without the
consent of both A Bhd and B Bhd.
A Bhd and B Bhd has a joint control of ABC Bhd.

Introduction
Joint operator a party to a joint operation
Joint venturer a party to a joint venture
Control (MFRS 10) exposure or have rights,
to variable returns from the involvement
with the joint arrangement and have the
ability to affect those returns through their
power over the arrangement
Joint the control is exerted collectively
(Appendix B6)

Example 6.13 NEJ: 428

.
Question: Is this a joint arrangement?
Answers:
Joint arrangement

Contractual Arrangement

Contract between the parties, minutes of

discussions between parties, arrangement in
articles or other by-laws if has separate vehicle in
writing
Deals with:
a) The purpose, activity and duration
b) Appointment of BOD or equivalent governing body

c) The decision making process: matters, voting

rights, level of support
d) The capital or other contributions

e) Share of assets, liabilities, revenues, expenses

or profit or loss relating to the joint arrangement

Forms of Joint
Arrangements
1. Joint operation
2. Jointly venture

Jointly Operation

A joint arrangement whereby the parties that have joint

control of the arrangement have rights to the assets, and
obligations for the liabilities, relating to the arrangement.
Usually no establishment of a corporation or separate vehicle.
Each operators carried out a different process.
Each operators uses his own assets & incurs its own
expenses.
Shares of common revenues and expenses from the joint
arrangement are based on contractual agreement.
e.g, Aircraft

Jointly controlled operation

Accounting treatment:

No separate accounting records are required for the joint

arrangement itself & FS may not be prepared for the joint
arrangement (no consolidation procedures required)
An operator should recognise in its separate financial
statements and CFS:

1. Its assets, including shared assets held jointly

2. Its liabilities, including shared liabilities incurred jointly

3. Its revenue from the sale of its share of the

output, including shared revenue
4. Its expenses, including shared expenses
incurred jointly

Jointly controlled operation

Accounting treatment:

A joint operator shall apply the relevant accounting standards

that are applicable to the particular assets, liabilities,
revenues and expenses
The difference between old and new MFRS: transition from equity
method to accounting for asset sand liabilities

Intercompany transactions between joint operator and the

joint operation:
Sales or contributions of assets : gains or losses only to the extent
of its interests, impairment loss in full
Purchase of assets: cannot recognise share of gain and losses until
it resells to a third party, impairment loss proportionate to its share

Joint venture
A joint arrangement whereby the parties that
have joint control of the arrangement have rights
to the net assets of the arrangement
Usually involves the establishment of a
corporation, partnership or other entity in which
each venturer has an interest.
The joint venture have its own set of accounts
and FS
The venturers are entitled to share of the results
of joint venture
Venturers contribution to JV-investment for
venturer & capital contribution for JV

Joint venture
Accounting treatment:
In its separate consolidated financial statements,
shall report its interest in JV entities using: (MFRS
127)
Equity method (MFRS 128):
- investment in the jointly controlled entities is initially
recorded at cost and the carrying amount is
subsequently adjusted to recognise the venturers share
of the profits and losses of Jointly Controlled Entities.

The difference between old and new MFRS: no

option to apply proportionate consolidation.

Joint operation vs. joint venture

Disclosure requirements
Listed in MFRS 12 Disclosure of Interests in Other Entities
An entity shall disclose information that enables users
of its financial statements to evaluate (Para 20) :
(a)the nature, extent and financial effects of its interests
in joint arrangements and associates, including the
nature and effects of its contractual relationship with
the other investors with joint control of, or significant
influence over, joint arrangements and associates
(paragraphs 21 and 22); and
(b) the nature of, and changes in, the risks associated
with its interests in joint ventures and associates
(paragraph 23).

End of the Chapter