Joint arrangements – IFRS 11

Definition of a joint arrangement:

• Contractual
• Two or more parties
• Joint control – unanimous consent is required between or among the parties in the joint arrangement

For example: Mr. A has 60% ownership, Mr. B has 20% ownership, Mr. C has 15% ownership and Mr. D has
5% ownership.

Mr. A and Mr. D agrees to share joint control, if Mr. A wants to enter into the construction contract, while
Mr. D does not want = there won’t be any decision

2 types of joint arrangement:

1. Joint operation – parties will have rights over the assets and obligations to the liabilities of the joint
operation (joint operator is an owner/co-owner of the assets of the JO and is liable for the liabilities
of the JO)
2. Joint venture – parties have rights over the net assets (joint venture is an investor of the JV)

NOTE: JV is always structured through a separate vehicle while JO can be structured with or without a
separate vehicle.

Accounting for Joint Operations – line by line accounting of the assets and liabilities, revenues and expenses
Mr. A and Mr. B entered into a joint operation. Under the agreement, Mr. A owns 60% of the cash of the JO
and Mr. B owns 50% of the plant assets of the joint operation.

Cash of JO – P100,000; Plant assets of JO – P250,000

Books of Mr. A
• Cash – JO: P60,000
• Plant assets – JO: P125,000

Books of Mr. B
• Cash – JO: P40,000
• Plant assets – JO: P125,000

Special scenario: personal gains on assets of the JO will be recognized only to the extent of the share of the
other party(ies)

Mr. A has a plant asset of P500,000 (fair value of P800,000) and he invests it into a joint operation for a 40%
interest in the JO.

1. How much is the JO – Plant Asset to be reported in the books of Mr. A?

2. How much is the gain on sale to be reported in the books of Mr. A?
 Carrying value of the plant asset invested P500,000
% retained 40%
Carrying value of the plant asset – JO P200,000

Plant asset
• 60% of the P500,000 is transferred out
Consideration (investment ni Mr. B na mapupunta) XX (40% of the investment of B)
PPE (transferred) 300,000
Gain on sale 180,000
• 40% of the P500,000 will still be reflected in your books
PPE – JO 200,000
PPE (retained) 200,000

Fair value P800,000

Carrying value (500,000)
Gain P300,000
% transferred out 60%
Gain to be recognized by Mr. A P180,000
Plant asset na 100% -> JO which is 60% owned by another person and 40% owned by you -> plant asset na
40% babalik sayo (di ka magkaka-gain dyan kasi nasayo pa din yung asset); gain to be recognized is only the
portion transferred out (yung hindi babalik sayo)

Joint Venture – IAS 28 or IAS 27

• If under IAS 28: equity method (if silent)
• If under IAS 27 (Separate financial statements of a parent): choice among: cost, fair value in
accordance with IFRS 9 or equity method

Why is it called equity method? Investment will mirror the equity

Example:
• What is the effect of net income on equity? Increases equity; investment in JV will also increase
• What is the effect of dividends on equity? Decreases equity; investment in JV will also decrease

Intercompany transactions such as intercompany sale of inventory from the investor to the JV – recognize
the gain on such transaction to the extent of the % transferred (yung gain not transferred will be eliminated)