Formation of a joint arrangement

Learning objectives

• Explain why the formation of a joint arrangement is excluded from IFRS 3 and that the exclusion applies only in the financial statements of the joint arrangement itself.L3

Normative references

• IFRS 3 §2Scope: IFRS 3 applies to any transaction or other event that meets the definition of a business combination. It does not apply to (a) the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself, (b) the acquisition of an asset or a group of assets that does not constitute a business (cost allocated to the individual identifiable items on the basis of their relative fair values, with no goodwill) and (c) combinations of entities or businesses under common control (guidance in B1 to B4). The wording of (a) comes from the Annual Improvements 2011-2013 Cycle (prospective application for annual periods beginning on or after 1 July 2014, para. 64J). Para. 2A also excludes the acquisition by an investment entity of a subsidiary that it is required to measure at fair value through profit or loss.

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

1 question

• The Vallon and Sérac groups set up a joint entity whose control they share, each contributing a business to it. The joint entity prepares its own financial statements. How is the formation of this joint arrangement treated in those financial statements under IFRS 3?L3