CFR411 ASSIGNMENT

TISSIE LITSON MKUMBADZALA (MK4104)

DIFFERENCES BETWEEN JOINT VENTURES
AND JOINT OPERATIONS

A Joint Arrangement, as per IFRS11, is an arrangement of which two or more parties have joint
control, such that the parties are bound by contractual arrangement and that contractual
arrangement gives two or more of those parties joint control of the arrangement. Joint
Arrangements are classified into Joint Operations and Joint Ventures.
A Joint Operation is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets, and obligations for the liabilities relating to the
arrangement. A Joint Venture is a joint arrangement whereby the parties that have joint control of
the arrangement have rights to the net assets of the arrangement.
These two arrangements differs in terms of their contractual arrangement, rights to assets,
obligations for their liabilities and their accounting treatment.
ACCOUNTING TREATMENT OF SCENARIO I, II & III IN QUESTION
ONE B

The accounting treatment for scenario (I) is for Lucy Ltd to recognize in its financial statement its
80% share of the assets, liabilities, income and expenses resulting from the arrangement. This is so
because it is a joint operation. The journal entry is to Debit Receivables with K80, 000, 000, Credit
Revenue with K80, 000, 000,Debit Construction Cost with K62,000, 000 and Credit Cash/Bank
with K62,000,000.
The accounting treatment for scenario (II) is for Lucy Ltd to use equity accounting as per IAS 28,
Investment in Associates and Joint Ventures. This is so because it is a Joint Venture. The journal
entry in the books of Lucy Ltd is to Debit Investment in Joint Venture with K130,000,000, Credit
Cash/Bank K130,000,000, Debit Share of profit from Joint Venture with K2, 000, 000 and Credit
Investment in Joint Venture with K2, 000, 000.
In scenario (III), It seems that no unanimous agreement was made between the two parties. Lucy
Ltd is able to set direct relevant activities of the business on its own, as such, Lucy Ltd have
significant influence over Haddock Ltd. This shows that it is outside the scope of IFRS 11, and its
interest in the arrangement will be accounted for in accordance with IAS 28, Investments in
Associates and Joint Ventures. This is so because this is not a joint arrangement, but rather an
associate.
IFRS FINANCIAL REPORTING TREATMENT OF SCENARIO 1, 2,
3 & 4 OF QUESTION TWO A
In scenario (I), Ryan has restated the opening balance of general machines and retained earnings as if the new policy had
always been in existence. As per IAS 8, Accounting policies, change in accounting estimates and error, the change
should have not been applied because it does not meet the criteria of changing the accounting policy. As such, the
restatement should be reversed and the original straight line depreciation method should be used. They should restate the
opening balance of general machines and retained earnings by increasing it with K352,100 and depreciation should be
charged at the revised carrying amount.
In scenario (II), the grant should be recognized as deferred income over the period necessary to match it with the related
costs, on a systematic basis, as per IAS 20, Accounting Standard for Government Grants and disclosure of Government
Assistance Since the asset has a four-year life with no residual value, it should be amortized over the useful life of fours
years and recognize the grant income over four years as well.
In scenario (III), Ryan should recognize an expense of K60, 000 in the financial statement for each year of the lease
term, including the year ended 30 June, 2021(IFRS 16 – Lease).
The asset in scenario (IV) was supposed to be measured at lower of carrying amount and fair value less costs to sell as
per IFRS 5, Non-current assets held for sale and discontinued operations. The reconditioning expenses incurred and the
selling expenses should be accounted for in the financial statement for the year ended 2022, since they were incurred
after year end. The revaluation surplus should be reversed and the carrying amount of the machine should be reduced by
to K155, 000.
 
ETHICAL ISSUES ARISING FROM HABAKKUK
LTD AND ITS COUNTER MEASURES

As the Financial Controller of Habakkuk Ltd, I have the responsibility to ensure that the Financial
Statements are prepared in accordance with relevant accounting standards and that they present a
true and fair view of the company’s financial position.
Some of the ethical issues in Habakkuk Ltd include non compliance with IFRS, lack of
transparency and full disclosure and inconsistency of accounting policies.
These ethical issues can be addressed by explaining the correct IFRS standard to Ryan, and
highlighting the potential consequences of not complying to the required standard, emphasizing
the importance of transparency and full disclosure in financial reporting and promoting
adherence to accounting policies and ensuring that any changes are properly justified and
implemented in accordance with appropriate accounting standard.
CONDITIONS WHICH MUST BE PRESENT IN ORDER TO PRESENT THE RESULTS OF AN OPERATION AS “DISCONTINUED "AND ITS ACCOUNTING TREATMENT

According to IFRS 5, a discontinued operation is a component of an entity that either has been disposed
of or is classified as held for sale, and represents either a separate major line of business or a
geographical area of operations.
In order to present the results of an operation as “discontinued”, the following conditions must be met:
The operation must be a separate major line of business or geographical area operation, the operation
must have been disposed off or be held for sale at the end of the reporting period and the disposal or
classification as held for sale must present a strategic shift that will have a major effect on the company’s
operations and financial results.
The Accounting treatment involves measuring the asset and liabilities of the discontinued operation at the
lower of their carrying amount or fair value less cost to sales, recognizing an impairment loss for any
initial or subsequent written down value of the assets to their fair value less cost to sales and any gain
should also be recognized and presenting the results of the discontinued operation as profit or loss,
showing the post-tax profit or loss from ordinary activities of the discontinued operation and post-tax
gain or loss recognized on the disposal.