BEAKAL EJIGU

(ACCA)
 IFRS 11-Joint
Arrangements &
Associates
 Table: Types of interest in other entities
Subsidiary Associate Joint Investment
Interest Interest Arrangement Interest

Ownership >50% 20% - 50% Joint < 20%

Accounting IFRS 3 IAS 28 IFRS 11 IFRS 9
Standards

Accounting Control = Significant Joint operation = At fair value.

Treatment Consolidation influence = in accordance Separate
Equity method with relevant financial
IASs/IFRSs; statements are
Joint venture = not required.
equity method.
 Joint arrangements (IFRS 11)

• A joint arrangement is an arrangement over which two or more parties have

joint control with all of the following characteristics:

► The parties are bound by a contractual arrangement

• ► That contractual arrangement a joint control of the arrangement

 Classification of a joint
arrangement
 Joint arrangement is classified as a joint operation or a joint venture

 Joint Operation is joint arrangements where parties have the rights to assets &

obligation for liabilities, relating to the arrangements.

 Joint Venture is joint arrangements where parties with joint control have the

right to net asset of the arrangements

 * If no Separate entity is established to conduct a joint activity, then such a

joint arrangement is by default a Joint Operation

 FS of parties to a joint arrangement

• A joint operator shall recognize in relation to its interest in joint Operation :

a) Its asset, including its share of any assets held jointly

b) Its liabilities, including its share of any liabilities incurred jointly.

c) Its revenue including its share of any revenue assumed jointly

d) Its expense, including its share of any expense assumed jointly

 Example
 A & B successfully tendered jointly for a contact to give consultancy services in

return for Br 3 million.

Contractual arrangement between A & B:
 each uses its own finances, facilities and employees in the consultancy activity
 A designed the accounting, finance and IT systems and prepares the related
manuals at a cost of Br800,000.
 B designs the operations, HRD, and marketing systems and prepares the related
manuals at a cost of Br1 million.
 A & B share equally in the Br3 million billed & received jointly to the
corporation.
 Jointly Controlled Entities (JV)
 A and B enter into a contract to acquire and operate a shopping
centre
 A and B set up X to own the shopping centre
 Legal form of X is such that X has rights to the assets and
liabilities for the obligations (not A and B)
 Activities include: rental of retail units, managing the car park,
maintaining the centre and its equipment (such as lifts), and
building the reputation and customer base
 The parties are not liable for the debts or liabilities of X
(liability limited to unpaid capital contribution)
 A and B have the right to sell or pledge interests in X
 A and B receive share of the net rental income
 FS of parties to a joint arrangement

 Joint Venturers Account for their interest in a JV as

an investment and is required to account it using
equity method in accordance with IAS 28
 End of IFRS 11

Thank you

Questions or Comments

13
End of IAS 24

Thank you

Questions or Comments
 IAS 28- Investments in
Associates and Joint Ventures
 IAS 28- Investments in Associates and Joint
Ventures 16

• Scope and introduction

• IAS 28 must be applied by all entities that are investors with joint
control of, or significant influence in an investee.
 Significant Influence 17

 Significant influence is the power to participate in the financial and

operating policy decisions of the investee.

• significant influence is not control (which indicates a subsidiary)

• significant influence is not joint control (which indicates an interest in a

joint arrangement)
 Measurement (Equity method) 19

 Associates and joint ventures are accounted for using the equity method.
 At initial recognition of an equity investment:
 investor/joint venturer measures investment in associate/joint venture at the
transaction price (including transaction costs)
 Subsequently measurement reflects the investor’s/joint venturer’s share of:
 the profit or loss and other comprehensive income of the associate/joint venture
 other changes in the equity of the associate/joint venture
 for example, distributions received from the associate/joint venture
 Measurement (Equity method) 20

 Presentation:
a one-line entry in the statement of comprehensive income ‘investor’s
share of the associate or joint venture’s profit or loss’ and a separate
line item for other comprehensive income.

a one-line item in the statement of financial position—Investment in

associate or joint venture.
 Equity method continued
21

• Equity accounting for an associate’s losses continues until the investment is

reduced to zero.

• Recognition of future share of profits only after share of profits equals

losses
 Example equity method 22

 On 1/3/2014 EEP buys 30% of Entity B for Br120 million(assume

no implicit goodwill & fair value adjustments).
Entity B’s profit = Br80 million for the year ended 31/12/2014
(including Br66.67million from March to Dec). On 31/12/2014
Entity B declared a dividend of Br100 million
At 31/12/2014 the recoverable amount of EEP’s investment in Entity
B = Br95 million (i.e. fair value 98 million less costs to sell 3
million).
Entity B reported loss of Br400 million for year ended 31/12/2015
and declared no dividend. It also reported profit of Br300 million for
year ended 31/12/2016 and declared no dividend.
 Example equity method 23

 Uniform accounting policies should be used

 If the associate or joint venture’s year end differs from the investor’s
adjustments must be made for significant transactions that occurred between
the dates.

 Application of the equity method is discontinued when:

 The investment becomes a subsidiary

 Significant influence or joint control of the investment is lost

 IFRS 9 application to interest retained (if any)

 Profit or loss on disposal

 Disclosure

The Disclosure requirements for Associates and joint arrangement are

listed on IFRS 12
 End of IAS 28

Thank you

Questions or Comments

27
IAS 24-Related Parties
Disclosure
 IAS 24-Related Parties Disclosure
Outline

Objective & Scope of IAS24

Related Party
Related party Transactions
Rationale for disclosing related party
transactions
Disclosures
 IAS 24 Related Parties
30 Disclosure

IAS 24 is primarily a disclosure standard

Scope of IAS24

 This Standard shall be applied in:

(a) identifying related party relationships and transactions;

(b) identifying outstanding balances between an entity and its related

parties;

(c) identifying the circumstances disclosed

 IAS 24 Related Parties
31
Disclosure
 Related Party:
 Entities are considered to be related parties if there is control or can
significant influence

 Related-party transactions:
 Related party transactions are transfer of resources whether a price
is charged for the transactions.

What is the rationale for compelling these disclosures?

 Because related-party transactions are different from armed –length
transactions
 32

IAS 24 Related Parties Disclosure

 Control
 the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities
 Joint control
 the contractually agreed sharing of control over an economic
activity
 Significant influence
 the power to participate in the financial and operating policy
decisions of an entity, but is not control over those policies
may be gained by share ownership, statute or agreement
 34
IAS 24 Related Parties Disclosure

 Parties are related if:

(a) directly, or indirectly :

(i) controls, is controlled by, or is under common control with, the entity

(ii) has significant influence over the entity; or

(iii) has joint control over the entity;

(b) (c) the party is a joint venture in which the entity is a venturer

(d) the party is a member of the key management personnel of the entity or its parent;
(e) the party is a close member of the family
 35

IAS 24 Related Parties Disclosure

 IAS 24 Related Parties Disclosure
38

 IAS 24 lists some of transactions that are disclosed if they are with a
related party:
1. Purchases or sales of goods
2. Purchases or sales of property and other assets
3. Rendering or receiving of services
4. Leases
5. Transfer of research and development
6. Transfers under license agreements
7. Provision of finance (including loans and equity contribution)
8. Provision of guarantees and collateral security
9. Settlement of liabilities on behalf of the entity or by the entity on
behalf of another party.
 39

IAS 24 Related Parties Disclosure

Disclosure:
The following disclosures are needed:
(1) Parent–Subsidiary Relationships
 Disclosures
• The name of the parent
• The name of the ultimate controlling party
• If neither of the above produce financial statements that are available, the name of the
next most senior parent
(2) Management Compensation
 Disclosures
• Short-term employee benefits (wages, salaries, bonuses, etc.)
• Post-employment benefits (pensions, life insurance, etc.)
• Other long-term benefits (sabbatical, disability, etc.)
• Terminations
• Share-based payments
 Total compensation benefits and subtotals for each of these categories should be disclosed
 IAS 24 Related Parties Disclosure
40

.....Disclosure:
(3) Related-Party Transactions
 Disclosures
 Amount
 Amount of balances still outstanding
 Provisions for doubtful debt and any related expense recognized during the period

 Who should make separate disclosures?

 Parent
 Entities with joint control/significant influence over the entity
 Subsidiaries
 Associates
 Joint ventures
 Key management personnel
 Other related parties
 41

IAS 24 Related Parties Disclosure

.....Disclosure:

 Arm’s-length transactions/terms
• May only disclose if this claim can be substantiated
• Substantiation might be made by benchmarking against other similar transactions

 Examples of related-party transactions

• Purchase or sales of goods or property
• Leases
• Loans
• Guarantees
• Others
 IFRS 8

OPERATING SEGMENTS
 INTRODUCTION

Better understand the organisation’s past performance 

Better assess the organisation’s risks and returns
Make more informed judgements about the organisation as a whole
 Operating segments

A component of an organisation:

 that which it may earn revenues and incur expenses;

 whose operating results are reviewed regularly by the

organisation’s Chief Operating Decision Maker (CODM) in order

to allocate resources; and

 for which discrete financial information is available.

 Reportable segments

An
An operating
operating segment
segment that
that exceeds
exceeds the
the QUANTITATIVE
QUANTITATIVE THRESHOLDS
THRESHOLDS

OR
OR

An operating segment for which management believes that providing the

segment information about would be useful to users of the financial statements
 Reportable segments -Thresholds

THREE QUANTITATIVE THRESHOLDS:

segment's revenue
combined revenue (internal & external)
1 (internal & >= 10% of all operating segments
external)

absolute amount of the greater of the

combined:
segment's absolute • profit of all operating segments that
2
profit or loss >= 10% did not report a loss
• loss of all operating segments that
reported a loss

combined assets of all operating

3 segment's assets >= 10% segments