Joint Arrangements by Antonio J.
Dayag
 Correlation of PFRS’s 9, 10, 11, 12,
PAS 28
 Principles of Investments in Joint
Arrangement
 Joint Arrangement ~ is an arrangement of which
two or more parties have joint control (PFRS 11,
part 4)
 Arrangement is described as an ACTIVITY or an
OPERATION or a specific grouping of asset and
liabilities, which may or may not form a legal
entity.
 Characteristics: (PFRS 11, part 5)
A. Parties are bound by contractual agreement
B2- Contractual agreements can be evidenced in
several ways. An enforceable contractual
arrangement is often, but, not always in writing.
It may be a contracted or documented
discussion between the parties.
B3- When joint arrangements are structured thru a
separate vehicle, the contractual agreement or
some aspects of contractual arrangement, in
some causes is incorporated in the articles,
charters or by-laws of the separate vehicle.
B4- Contractual arrangement sets out the terms upon
which the parties participate in the activity that
is the subject of the arrangement.
B. Contractual Arrangement gives two or more
parties joint control of the arrangement.
 Joint Control~ is the contractual 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.(PFRS 11, part 7)
 First key aspect of joint control assess whether the
contractual arrangement gives all the parties or a
group of parties control the arrangement collectively.
(PFRS 11, part 8)
 Second key aspect of joint control is that it exists only
when decisions about the relevant activities require
unanimous consent of parties that control the
arrangement collectively. (PFRS 11, part 9)
 Where a joint arrangement exists there is no single
party that has control. (PFRS 11, part 10)
 Party with joint control of an arrangement can present
any other parties or a group of parties from
controlling the arrangement. (PFRS 11, part 10)
 There can be a joint arrangement even though not all
parties have joint control of the arrangement.
(PFRS 11, part 11)
 Judgment is needed to assets whether the parties, or a
group of parties, have joint control of the
arrangement, assessment shall be made by
considering all facts and circumstances. (PFRS 11,
part 12)
 If facts and circumstances change, an entity shall
reassess whether I has joint control of the
arrangement.
B5- Asset control
B6- Determine if joint control
B8- When the minimum required proportion of the
voting rights can be achieved by more than one
combination of the parties agreeing together, that
arrangement is not a joint arrangement unless
stipulated by contractual arrangements
B9- Protective rights only and not relevant activities-
not a party with joint control
B10- Arbitration of disputes does not prevent the
arrangement from being jointly controlled/joint
arrangement
B11- If arrangement outside PFRS 11, an entity
accounts for its interest in accordance with
relevant PFRS such as PFRS 10, 28 or PFRS 9.
 Voting Rights
*Joint Control ~ the parties collectively control the
arrangement because they are the only combination of
parties that can control and the parties must unanimously
agree. In case 3, there is also a joint control because a
single combination is sufficient to achieve the minimum
proportion or voting rights. (25%>20%)
**No Joint Control ~ multiple combination of parties
could collectively control the arrangement, the
contractual agreement does not specify which parties
must agree, there is no unanimous consent. The
arrangement is treated as an ASSOCIATE. (Case 2,
both 25%, case 4, ONLY 70% and there are other
parties)
 Contractual Terms  In contributing an asset, the operator is as if selling a
proportion of that asset to the other joint operators and
retaining a proportion for itself.
 If CA < FV, operator makes a profit.
 Profit = FV- CA, of the proportion of the asset sold.
 If joint arrangement is a partnership in nature, separate
accounting records do not need to be kept, each joint
operator records all the joint operation transactions in
their own books, whether he is a party to the
transactions or not, joint operators must inform on time
the other operators the transactions made by him.
 An account Investment in operation must be
maintained. The following transactions affect the
account:

 Cash Settlement: computation of cash settlement upon

termination,
Interest in Joint Operation P xxx
Add: Share in joint operation gain or profit xxx
Total: P xxx
Less: Withdrawals xxx
Cash Settlement P xxx

 PAS 31 vs. PFRS11  Accounting for Joint Venture

 A party that participates, but does not have joint
control, a joint venture shall account for its interest in the
arrangement in accordance with PAS 39/PFRS 9
financial instruments, unless it has Significant Influence
(PAS 28).
 Joint venture agreement specifies each co-venture’s
capital contribution, representation of the board of
directors, and involvement, plus other relevant matters.
 A distinguishing characteristic of a joint venture is that
no investor can make strategic decisions unilaterally.
 Joint control is not the same with profit sharing.
 Investment should be recorded at the fair value of the non-
monetary assets transferred to the joint venture
 Only the gain represented by interests of the other
nonrelated ventures should be recognized on the date of
the contribution and if only the transaction has
commercial substance as per PAS 16.
 Principles on business combinations accounting that do
 Accounting for Joint Operation not conflict with te guidance in this PFRS include but are
 Where the joint operation is undertaken in a separate not limited to:
vehicle, separate accounting records do not need to be 1. Measuring identifiable assets and liabilities at fair
kept for the joint operation. value, other than items for which exceptions are given
Example: joint operation does not sell the output in PFRS 3 and other PFRSs.
produced, but rather distributes it to the operators. No 2. Recognizing acquisition-related costs as expenses in
profit/loss account rose. the periods in which the costs are incurred and the
 Where the Operator contributes a non- current asset services are received, with the exception that the costs
to the joint operation, the value of the contribution is to issue debt or equity securities are recognized in
effectively the fair value of that non- current asset. accordance with PAS 32 and IFRS 9
3. Recognizing deferred tax assets and deferred tax
liabilities that arise from the initial recognition of
 assets or liabilities, except for deferred tax liabilities
that arise from the initial recognition of goodwill.
4. Recognizing the excess of the consideration
transferred over the net of acquisition date amounts
of the identifiable assets acquired and the liabilities
assumed, if any, as goodwill
5. Testing for impairment a cash-generating unit to
which goodwill has been allocated at least annually,
and whenever there is an indication that the unit may
be impaired, as required by PAS 36
 The consolidated statement of financial position is
prepared by:
1. Including the interest in the joint venture at a
cost plus share of post-acquisition in total
comprehensive income
2. Including group share of the post-acquisition  Upstream Transactions, Joint venture may sell or
total comprehensive income in the
consolidated equity
 The consolidated income statement and other
comprehensive income will include:
1. The consolidated share in the joint venture’s
net or loss
2. The consolidated share in the joint venture’s
other comprehensive income
 Use of equity method should be discontinued from the
date on which the venture ceases to have joint control
over, or have significant influence, on a joint venture.
 PFRS 12 addresses all disclosure requirements in
respect of interests in other entities and it is applicable
to an entity that has an interest in any combination of
the following: subsidiaries, joint arrangements,
associates and unconsolidated structured entities.
 PFRS 11 prescribes that a joint venture shall recognize
its interest in a joint venture as an investment and shall
account for that investment using equity method in
accordance with PAS 28, Investment in Associates and
Joint Ventures, unless exempted from applying the  Joint Venture Losses
equity method as specified in that standard.
 The Equity Method of Accounting
 In the separate financial statements of an investor,
investment in joint ventures and associate are accounted
at cost or at fair value. Under either measurement basis,
the investor recognizes dividend income when right to
receive dividend has been established.
 Exemptions from the Equity Method:
In general, joint ventures should be accounted for using
the equity method
1. For certain entities, they may elect to measure their
investments in associates and joint venture at fair
value through profit or loss in accordance with PAS
39/PFRS 9.
2. When availed, such entities need not apply the equity
method for the Standard but they must disclose their
involvements in accordance with PFRS 12.
 For other entities the exemption from the equity method
applies only if the entity is a parent that is exempted
from preparing consolidated financial statements or if
the following conditions are met:
1. The entity is a wholly-owned subsidiary or partial-
owned subsidiary of another entity and its other
owners are informed about and do not object to not
applying he equity method
2. Entity’s debt or equity instruments are not traded in a
public market
3. Entity did not file or not in the process of filing it’s
FS with the SEC or any regulatory organization for
the purpose of issuing any instrument in the public
market.
4. The ultimate or any intermediate parent produces
CFS available for public use that complies with
PFRSs.
 Downstream Transactions, when a joint venture
purchases assets from a joint venture, the joint venture
should not recognize its share of the profit made by the
joint venture on the transactions in question until it sells
the asset to an independent third party until profit is
realized
contribute assets so making a profit or loss. Any such
gain or loss should however, only be recognized to the
extent that it reflects the substance of the transaction
 Only the gain attributable to the interest of the other
joint venture should be recognized in the financial
statements.
 Full amount of any loss should be recognized when the
transaction shows evidence that the net realizable value
of current assets is less than the cost or there is an
impairment loss.
 Other principle of eliminating unrealized profits or
losses in proportion to the investor’s ownership
interest in the joint venture also applies to other
intercompany transactions, such as transfer or sale of
PPE.
 Adjustments to eliminate the investor’s proportionate
share of unrealized profit or loss on any intercompany
transaction need to be made to the balances of the
particular accounts in which the effects of unrealized
P/L are recorded
 When the equity method being used by the Joint
Venture’s share of losses of the joint venture equals or
exceeds its interest in joint venture, it should discontinue
including its share of further losses. Investment is
recorded at zero value.
 After the interest is reduced to zero, additional losses
should only be recognized where the joint venture has
incurred obligations, or made payments on behalf of the
joint venturer.
 Goodwill and Impairment Testing
 Any Impairment loss id recognized in accordance with
PAS 36 Impairment of assets for joint venture as a
dingle asset.
 There is no separate testing for impairment of
goodwill, as it form forms part of the CA of an
investment in Joint venture and is not separately
recognized
 Any reversal of that impairment loss is recognized in
accordance with PAS 36 to the extent of the
recoverable amount of investment that subsequently
increased.
 Goodwill does not arise when the joint venture is first
established. Goodwill may arise of an investor
purchases its interest in a joint venture from other
investors and it pays a premium over its share in the
net assets.
  Any Impairment loss attributable to the goodwill of loss, and the corresponding amount should be credited
joint venture shall be recognized as impairment loss of to the carrying amount of the investment in joint
investment in associate or joint venture in profit or venture.

Summary of the Accounting Treatment required at each

Levels of reporting for Consolidated Financial Statements (CFS) Purpos
Investment Criteria Investor’s Separate FS Consolidated FS Required
Treatment in CFS

Subsidiary Control PAS 27: Investments carried at: PFRS 10: Investment is
(51% or 1. Cost eliminated and net assets of Full Consolidation
more) 2. PFRS 9/PAS39 subsidiary are consolidated with
3. Using Equity Method those of the parent
Associate Significant PAS 27: Investments carried at: PAS 28/PFRS 10: Investment is
Influence 1. Cost accounted for using the equity Equity Accounting
(20%-50%) 2. PFRS 9/PAS39 method
3. Using Equity Method
Joint Venture Joint PAS 27: Investments carried at: PAS 28/PFRS 10/PFRS 11:
Control 1. Cost Investment is accounted for using Equity Accounting
(20%-50%) 2. PFRS 9/PAS39 the equity method
3. Using Equity Method
Other Asset held
Investment for PFRS 9 PFRS 9 As for single
accretion company accounts
of wealth