DEMBEL COLLEGE

LEGA TAFO CAMPUS

DEPARTMENT OF ACCOUNTING AND FINANCE

COURSE TITLE:ADVANCED FINANCIAL ACCOUNTING-II

Course Instructor: Benol Mekonnen (BSC, BA and MBA)

 CHAPTER ONE

OVERVIEW OF JOINT
ARRANGEMENTS

Compiled by Benol.M
 Introduction
 IFRS 11 establishes principles for financial reporting
by entities that have an interest in arrangements that
are controlled jointly (joint arrangements).
 The standard must be applied by all entities who are
party to a joint arrangement.
 IFRS defines joint control and requires an entity that
is a party to a joint arrangement to determine the
type of joint arrangement in which it is involved by
assessing its rights and obligations and to account for
those rights and obligations in accordance with that
type of joint arrangement.

Compiled by Benol.M
 1. Joint Arrangements
 A joint arrangement is an arrangement over
which two or more parties have joint control. The
parties are bound by a contractual arrangement
Contractual arrangements define :
 The purpose, activity and duration of
joint arrangement
 The decision making process
 Capital or other contributions required of the parties
 How the parties share assets, liabilities,
revenues, expense or profit/loss relating to joint
arrangements
That contractual arrangement gives two or more of
those parties joint control of the arrangement
 Reasons for Joint Arrangements

 Opportunity to gain new capacity and expertise

 Enter related business or new geographic markets or
gain new technological knowledge
 Gives access to greater resources including
specialized staff and technology.
 Shares risks
 It can be flexible
Classification of joint arrangements
 Joint arrangement is classified as a joint
operation or a joint venture depending on the
assessment of the rights and obligation of the
parties to the arrangement.
1. Joint Operation
 Joint Operation is joint arrangements where
parties with joint control have the rights to
assets & obligation for liabilities, relating to the
arrangements.
 established as unstructured separate form
 No separate entity is established to conduct joint
activities
 a joint operator enters into an agreement with one or
more joint operator to produce, market, and
distribute a specific product each joint operator
provides its specific operating expertise
 each may agree to use their own assets, incur
their
own expenses and liabilities, and finance their
own requirements
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 from the sale of its share of the output
arising from joint operation
d. Its expense, including its share of any
expense incurred jointly.
2. Joint venture
 Joint Venture is joint arrangements where parties
with joint control have the right to net asset of
the arrangements
 It is established through structured separate
form.
 Legal form of the separate vehicle
 The terms of the contractual arrangements
 This may be a corporation, a partnership, or other
form of organization
 Each venturer usually has an ownership interest
in the venture and is entitled to a share of its
profits or output
 when organized, the individual venturers
contribute cash or other assets in return for an
ownership interest contributions are recognized
by each venturer as an investment in the JV
 Example
• AB Company and BD Company each invested Br
400,000.00 for a 50% interest in AD joint
venture on January 1, 2019. At December 31,
2019, AD reported a Net Income of Br
300,000.00 and also on December 21, 2019 it
declared a dividend of Br 100,000.00
For AB and BD personal account
Jan 1: Investment in AD……..400,000.00
Cash…………..…………400,000.00
Dec31: Investment in AD……..150,000.00
Income from AD…………150,000.00
Dec 21: Dividend receivable………..50,000.00
Investment in
AD……..50,000.00
Thank You!!
Compiled by Benol.M