With a separate vehicle: three elements of analysis

Learning objectives

• Explain that, when a separate vehicle exists, classification is assessed on the basis of the legal form, the contractual terms and, when relevant, other facts and circumstances.L2
• Analyse a case in which the legal form and the contractual terms lead to different conclusions in order to justify a classification.L3

Normative references

• IFRS 11 §17An entity applies judgement when assessing whether a joint arrangement is a joint operation or a joint venture: it determines the type of joint arrangement by considering its rights and obligations, assessed in the light of the structure and legal form of the arrangement, the terms agreed in the contractual arrangement and, when relevant, other facts and circumstances (application guidance B12 to B33).
• IFRS 11 §B15To classify the joint arrangement, the entity assesses its rights and obligations by considering: (a) the structure of the joint arrangement; (b) when it is structured through a separate vehicle, the legal form of that vehicle, the terms of the contractual arrangement and, when relevant, other facts and circumstances (developed in B16 to B33).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• When a joint arrangement is structured through a separate vehicle, on what do the parties base its classification as a joint operation or a joint venture?L2
• Which statements about the classification of a joint arrangement structured through a separate vehicle are correct? More than one answer is possible.L2
• Cobalt SA and Dune SA create Éolia SAS, a separate vehicle that operates a wind farm. By its legal form, Éolia owns the turbines and is solely liable for its debts. The contractual arrangement nevertheless provides that Cobalt and Dune share all of Éolia's output equally and bear its expenses and debts equally (case facts). Write a short note justifying the classification of the joint arrangement, distinguishing rule, case facts and professional judgement, and dealing with the disagreement between legal form and contractual terms.L3