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Thread: 19 -Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27) - Interests in Joint Ventures

  1. #1
    IND-AS
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    Thumbs up 19 -Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27) - Interests in Joint Ventures

    Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27)

    Interests in Joint Ventures


    (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles).


  2. #2
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    Thumbs up Scope of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27) - Interests in Joint Ventures

    Scope of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27)

    Interests in Joint Ventures



    Scope

    1. This Standard shall be applied in accounting for interests in joint ventures and the reporting of joint venture assets, liabilities, income and expenses in the financial statements of venturers and investors, regardless of the structures or forms under which the joint venture activities take place. However, it does not apply to venturersí interests in jointly controlled entities held by:

    (a) venture capital organisations
    (b) [Refer to Appendix 1]

    that upon initial recognition are designated as at fair value through profit or loss or are classified as held for trading and accounted for in accordance with Ind AS 39 Financial Instruments: Recognition and Measurement. Such investments shall be measured at fair value in accordance with Ind AS 39, with changes in fair value recognised in profit or loss in the period of the change. A venturer holding such an interest shall make the disclosures required by paragraphs 5 5 and 56.

    2. A venturer with an interest in a jointly controlled entity is exempted from paragraphs 30 (proportionate consolidation) and 38 (equity method) when it meets the following conditions:

    (a) the interest is classified as held for sale in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations ;

    (b) [Refer to Appendix 1]
    (c) [Refer to Appendix 1]


  3. #3
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    Thumbs up Definitions of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27) - Interests in Joint Ventures

    Definitions of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27)

    Interests in Joint Ventures



    Definitions


    3. The following terms are used in this Standard with the meanings specified:
    Control is the power to govern the financial and operating policies of an economic activity so as to obtain benefits from it.

    The equity method is a method of accounting whereby an interest in a jointly controlled entity is initially recorded at cost and adjusted thereafter for the post-acquisition change in the venturerís share of net assets of the jointly controlled entity. The profit or loss of the venturer includes the venturerís share of the profit or loss of the jointly controlled entity.

    An investor in a joint venture is a party to a joint venture and does not have joint control over that joint venture.

    Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers).

    A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control.

    Proportionate consolidation is a method of accounting whereby a venturerís share of each of the assets, liabilities, income and expenses of a jointly controlled entity is combined line by line with similar items in the venturerís financial statements or reported as separate line items in the venturerís financial statements.

    Separate financial statements are those presented by a parent, an investor in an associate or a venturer in a jointly controlled entity, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees.

    Significant influence is the power to participate in the financial and operating policy decisions of an economic activity but is not control or joint control over those policies.

    A venturer is a party to a joint venture and has joint control over that joint venture.

    4. Financial statements in which proportionate consolidation or the equity method is applied are not separate financial statements, nor are the financial statements of an entity that does not have a subsidiary, associate or venturerís interest in a jointly controlled entity.

    5. Separate financial statements are those presented in addition to consolidated financial statements, financial statements in which investments are accounted for using the equity method and financial statements in which venturersí interests in joint ventures are proportionately consolidated. Separate financial statements need not be appended to, or accompany, those statements , unless required by law.

    6. [Refer to Appendix 1]


  4. #4
    IND-AS
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    Thumbs up Forms of joint venture of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27) - Interests in Joint Ventures

    Forms of joint venture of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27)

    Interests in Joint Ventures



    Forms of joint venture

    7. Joint ventures take many different forms and structures. This Standard identifies three broad typesójointly controlled operations, jointly controlled assets and jointly controlled entitiesóthat are commonly described as, and meet the definition of, joint ventures. The following characteristics are common to all joint ventures:

    (a) two or more venturers are bound by a contractual arrangement; and
    (b) the contractual arrangement establishes joint control.


  5. #5
    IND-AS
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    Thumbs up Joint control of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27) - Interests in Joint Ventures

    Joint control of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27)

    Interests in Joint Ventures


    Joint control

    8. Joint control may be precluded when an investee is in legal reorganisation or in bankruptcy, or operates under severe long -term restrictions on its ability to transfer funds to the venturer. If joint control is continuing, these events are not enough in themselves to justify not accounting for joint ventures in accordance with this Standard.


  6. #6
    IND-AS
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    Thumbs up Contractual arrangement of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27) - Interests in Joint Ventures

    Contractual arrangement of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27)

    Interests in Joint Ventures



    Contractual arrangement

    9. The existence of a contractual arrangement distinguishes interests that involve joint control from investments in associates in which the investor has significant influence (see Ind AS 28). Activities that have no contractual arrangement to establish joint control are not joint ventures for the purposes of this Standard.

    10. The contractual arrangement may be evidenced in a number of ways, for example by a contract between the venturers or minutes of discussions between the venturers. In some cases, the arrangement is incorporated in the articles or other by-laws of the joint venture. Whatever its form, the contractual arrangement is usually in writing and deals with such matters as:

    (a) the activity, duration and reporting obligations of the joint venture;
    (b) the appointment of the board of directors or equivalent governing body of the joint venture and the voting rights of the venturers;
    (c) capital contributions by the venturers; and
    (d) the sharing by the venturers of the output, income, expenses or results of the joint venture.

    11. The contractual arrangement establishes joint control over the joint venture. Such a requirement ensures that no single venturer is in a position to control the activity unilaterally.

    12. The contractual arrangement may identify one venturer as the operator or manager of the joint venture. The operator does not control the joint venture but acts within the financial and operating policies that have been agreed by the venturers in accordance with the contractual arrangement and delegated to the operator. If the operator has the power to govern the financial and operating policies of the economic activity, it controls the venture and the venture is a subsidiary of the operator and not a joint venture.


  7. #7
    IND-AS
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    Thumbs up Jointly controlled operations of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27) - Interests in Joint Ventures

    Jointly controlled operations of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27)

    Interests in Joint Ventures


    Jointly controlled operations

    13. The operation of some joint ventures involves the use of the assets and other resources of the venturers rather than the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Each venturer uses its own property, plant and equipment and carries its own inventories. It also incurs its own expenses and liabilities and raises its own finance, which represent its own obligations. The joint venture activities may be carried out by the venturerís employees alongside the venturerís similar activities. The joint venture agreement usually provides a means by which the revenue from the sale of the joint product and any expenses incurred in common are shared among the venturers.

    14. An example of a jointly controlled operation is when two or more venturers combine their operations, resources and expertise to manufacture, market and distribute jointly a particular product, such as an aircraft. Different parts of the manufacturing process are carried out by each of the venturers. Each venturer bears its own costs and takes a share of the revenue from the sale of the aircraft, such share being determined in accordance with the contractual arrangement.

    15. In respect of its interests in jointly controlled operations, a venturer shall recognise in its financial statements:

    (a) the assets that it controls and the liabilities that it incurs; and
    (b) the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint venture.

    16 Because the assets, liabilities, income and expenses are recognised in the
    financial statements of the venturer, no adjustments or other consolidation
    procedures are required in respect of these items when the venturer presents
    consolidated financial statements.

    17. Separate accounting records may not be required for the joint venture itself and financial statements may not be prepared for the joint venture. However, the venturers may prepare management accounts so that they may assess the performance of the joint venture.


  8. #8
    IND-AS
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    Thumbs up Jointly controlled assets of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27) - Interests in Joint Ventures

    Jointly controlled assets of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27)

    Interests in Joint Ventures


    Jointly controlled assets

    18. Some joint ventures involve the joint control, and often the joint ownership, by the venturers of one or more assets contributed to, or acquire d for the purpose of, the joint venture and dedicated to the purposes of the joint venture. The assets are used to obtain benefits for the venturers. Each venturer may take a share of the output from the assets and each bears an agreed share of the expenses incurred.

    19. These joint ventures do not involve the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Each venturer has control over its share of future economic benefits through its share of the jointly controlled asset.

    20. Many activities in the oil, gas and mineral extraction industries involve jointly controlled assets. For example, a number of oil production companies may jointly control and operate an oil pipeline. Each venturer uses the pipeline to transport its own product in return for which it bears an agreed proportion of the expenses of operating the pipeline. Another example of a jointly controlled asset is when two entities jointly control a property, each ta king a share of the rents received and bearing a share of the expenses.

    21. In respect of its interest in jointly controlled assets, a venturer shall recognise in its financial statements:

    (a) its share of the jointly controlled assets, classified according to the nature of the assets;
    (b) any liabilities that it has incurred;
    (c) its share of any liabilities incurred jointly with the other venturers in relation to the joint venture;
    (d) any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and
    (e) any expenses that it has incurred in respect of its interest in the joint venture.

    22. In respect of its interest in jointly controlled assets, each venturer includes in its accounting records and recognises in its financial statements:

    (a) its share of the jointly controlled assets, classified according to the nature of the assets rather than as an investment. For example, a share of a jointly controlled oil pipeline is classified as property, plant and equipment.
    (b) any liabilities that it has incurred, for example those incurred in financing its share of the assets.
    (c) its share of any liabilities incurred jointly with other venturers in relation to the joint venture.
    (d) any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture.
    (e) any expenses that it has incurred in respect of its interest in the joint venture, for example those related to financing the venturerís interest in the assets and selling its share of the output.

    Because the assets, liabilities, income and expenses are recognised in the financial statements of the venturer, no adjustments or other consolidation procedures are required in respect of these items when the venturer presents consolidated financial statements.

    23. The treatment of jointly controlled assets reflects the substance and economic reality and, usually, the legal form of the joint venture. Separate accounting records for the joint venture itself may be limited to those expenses incurred in common by the venturers and ultimately borne by the venturers according to their agreed shares. Financial statements may not be prepared for the joint venture, although the venturers may prepare management accounts so that they may assess the performance of the joint venture.


  9. #9
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    Thumbs up Jointly controlled entities of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27) - Interests in Joint Ventures

    Jointly controlled entities of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27)

    Interests in Joint Ventures


    Jointly controlled entities

    24. A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. The entity operates in the same way as other entities, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.

    25. A jointly controlled entity controls the assets of the joint venture, incurs liabilities and expenses and earns income. It may enter into contracts in its own name and raise finance for the purposes of the joint venture activity. Each venturer is entitled to a share of the profits of the jointly controlled entity, although some jointly controlled entities also involve a sharing of the output of the joint venture.

    26. A common example of a jointly controlled entity is when two entities combine their activities in a particular line of business by transferring the relevant assets and liabilities into a jointly controlled entity. Another example is when an entity commences a business in a foreign country in conjunction with the government or other agency in that country, by establishing a separate entity that is jointly controlled by the entity and the government or agency.

    27. Many jointly controlled entities are similar in substance to those joint ventures referred to as jointly controlled operations or jointly controlled assets. For example, the venturers may transfer a jointly controlled asset, such as an oil pipeline, into a jointly controlled entity, for tax or other reasons. Similarly, the venturers may contribute into a jointly controlled entity assets that will be operated jointly. Some jointly controlled operations also involve the establishment of a jointly controlled entity to deal with particular aspects of the activity, for example, the design, marketing, distribution or after -sales service of the product.

    28. A jointly controlled entity maintains its own accounting records and prepares and presents financial statements in the same way as other entities in conformity with Indian Accounting Standards.

    29. Each venturer usually contributes cash or other resources to the jointly controlled entity. These contributions are included in the accounting records of the venturer and recognised in its financial statements as an investment in the jointly controlled entity.


  10. #10
    IND-AS
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    Thumbs up Proportionate consolidation - Financial statements of a venturer of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27)

    Proportionate consolidation - Financial statements of a venturer of Indian Accounting Standard (Ind AS) 31 - Earlier Accounting standard - (27)

    Interests in Joint Ventures


    Financial statements of a venturer

    Proportionate consolidation


    30. A venturer shall recognise its interest in a jointly controlled entity using proportionate consolidation or the alternative method described in paragraph 38. When proportionate consolidation is used, one of the two reporting formats identified below shall be used.

    31. A venturer recognises its interest in a jointly controlled entity using one of the two reporting formats for proportionate consolidation irrespective of whether it also has investments in subsidiaries or whether it describes its financial statements as consolidated financial statements.

    32. When recognising an interest in a jointly controlled entity, it is essential that a venturer reflects the substance and economic reality of the arrangement, rather than the joint ventureís particular structure or form. In a jointly controlled entity, a venturer has control over its share of future economic benefits through its share of the assets and liabilities of the venture. This substance and economic reality are reflected in the consolidated financial statements of the venturer when the venturer recognises its interests in the assets, liabilities, income and expenses of the jointly controlled entity by using one of the two reporting formats for proportionate consolidation described in paragraph 34.

    33. The application of proportionate consolidation means that the balance sheet of the venturer includes its share of the assets that it controls jointly and its share of the liabilities for which it is jointly responsible. The statement of profit and loss of the venturer includes its share of the income and expenses of the jointly controlled entity. Many of the procedures appropriate for the application of proportionate consolidation are similar to the procedures for the consolidation of investments in subsidiaries, which are set out in Ind AS 27.

    34. Different reporting formats may be used to give effect to 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. For example, it may combine its share of the jointly controlled entityís inventory with its inventory and its share of the jointly controlled entityís property, plant and equipment with its property, plant and equipment. Alternatively, 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. For example, it may show its share of a current asset of the jointly controlled entity separately as part of its current assets; it may show its share of the property, plant and equipment of the jointly controlled entity separately as part of its property, plant and equipment. Both these reporting formats result in the reporting of identical amounts of profit or loss and of each major classification of assets, liabilities, income and expenses; both formats are acceptable for the purposes of this Standard.

    35. Whichever format is used to give effect to proportionate consolidation, it is inappropriate to offset any assets or liabilities by the deduction of other liabilities or assets or any income or expenses by the deduction of other expenses or income, unless a legal right of set -off exists and the offsetting represents the expectation as to the realisation of the asset or the settlement of the liability.

    36. A venturer shall discontinue the use of proportionate consolidation from the date on which it ceases to have joint control over a jointly controlled entity.

    37. A venturer discontinues the use of proportionate consolidation from the date on which it ceases to share in the control of a jointly controlled entity. This may happen, for example, when the venturer disposes of its interest or when such external restrictions are placed on the jointly controlled entity that the venturer no longer has joint control.


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