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15- Joint arrangement & group disclosures - Coggle Diagram
15- Joint arrangement & group disclosures
Definitions
Joint arrangement
Two or more parties have joint control
Characteristics
Parties are bound by a contractual arrangement
The contractual arrangement gives two or more parties joint control over the arrangement
Types
Joint operation
Rights to the assets and obligations to the liabilities
Accounting for joint operation
In its separate FS, a joint operator recognises
Its own assets, liabilities and expenses
Its share of assets held & expenses and liabilities incurred jointly
Its revenue from the sale of its shares of the output arising from the joint operations
Its share of revenue from the sale of output arising from the joint operation itself
Joint venture
Rights to the net assets of the arrangement
Accounting for joint venture
Parent's separate FS
Investment in subs, associate, and joint ventures
At cost
At FV (as financial asset)
Equity method in accordance with IAS 28 Investment in Associate and Joint Ventures
Must be used if joint venturer has no subs
Consolidated FS
Equity method in exactly the same way as for associates
Accounting treatment
Determined based on the substance
No separate entity has been created
Recognise the direct rights it has to the assets and obligation it has for the liabilities in its FS
Joint operation
Separate entity has been created
The venturer accounts for its share of that entity using equity accounting
Entity considers:
Legal form
Terms of contractual arrangement
Where relevant (other facts and circumstances)
Joint venture
Joint control
The contractually agreed sharing of control of an arrangement
Exist only when decisions about relevant activities require unanimous consent of the parties sharing control
IFRS 12 Disclosures of Interests in Other Entities
Objectives
Require entity to disclose information that enables the user of the FS to evaluate
Nature of
Risks associated with
Interest in other entities
Effects of those interests on its SOFP, SOPL and SOCF
For entities which have interest in
Subs
Joint arrangement
Associate
Unconsolidated structured entities
Structured entities
An entity that has been designed so that voting or similar rights are not the dominant factor in deciding who control the entity
Example
When any voting rights relate to administrative tasks only
The relevant activities are directed by means of contractual arrangements
Set up to undertake narrow activities, such as specific R&D project or to provide a source of funding to another entity
They do not normally have sufficient equity to finance their own activities and are therefore backed by financing arrangements.
Disclosures are required for structured entities due to their sensitive nature
Stakeholder perspective
Difficult to understand
Business structure are highly complex
Lines of control and influence are drawn and what the implications are for the reporting entity
Prior to IFRS 12
Special purpose entity are not consolidated or disclosed despite the fact that the reporting entity is exposed to the risks and returns
Therefore, investors cannot fully understand
Disclosures
Significant judgments and assumptions made to determine whether or not the entity has control, joint control or significant influence & to determine the type of arrangement
Info to understand the composition of the group and the interest that NCI have in the group's cash flows
The nature, extent and financial effects of interests in joint arrangements and associates, including the nature and effects of the entity's contractual relationship with other investors
Nature and extent of interests in unconsolidated structured entities
Nature and extent of significant restrictions on the entity's ability to access or use assets or liabilities of the group
Nature of and changes in the risks associated with the entity's interests in consolidated structured entities, JV, associates and unconsolidated structured entities
The consequences of the change in entity's ownership interest in a subs that do not result in the loss of control that is the effects on the equity attributable to owners of the parent
Consequences of losing control of a subsidiary during the reporting period