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WorkpaperIFRS 11 — Joint ArrangementsL2 · L3 · L4

Joint venturer and party without joint control: equity-method carrying amount, significant influence and separate financial statements

5 missions10 sections to document60 min
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Status
Published

Objective of the workpaper

List the profit, the dividends and the percentage of the joint venturer, compute the share of profit or loss and the closing carrying amount under the IAS 28 equity method, then judge the significant influence of a party without joint control and the policy for the separate financial statements. Percentages and amounts are case data; the choice of method in the separate statements is a group policy, never presented as imposed by IFRS 11.

10 sections · 25 blocks · 3 calculations · 3 entries

  • IFRS 11 §24
  • IFRS 11 §25

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File and entity
Joint venture: equity method under IAS 28, share of profit and loss, dividends, party without joint control and IFRS 12 disclosures
Case tasks documented here
  • How does Sauvanne account for its interest in a joint venture?
  • Corvane: compute the share of profit of Sauvanne.
  • Delmas: compute the share of loss of Sauvanne.
  • Corvane: compute the closing carrying amount of the investment.
  • Delmas: compute the closing carrying amount of the investment.
  • Tirel: what is its share of the profit of Corvane if it applies the equity method?
  • Does Tirel have significant influence, and which standard does it apply to its interest?
  • Corvane: record the share of profit.
  • Delmas: record the share of loss.
  • Corvane: record the dividend received.
1

Facts and data

Inputs

  • Joint venture: parties, percentage held, position of each investor

    TextRequired

    JOINT_VENTURE_HELD_AT_FORTY_PERCENT_EQUITY_METHOD

  • Profit of the joint venture for the period

    Number

    800,000

  • Loss of the joint venture for the period

    Number

  • Investor's percentage in the joint venture (%)

    Number

    40 %

  • Opening carrying amount of the investment

    Number

    1,500,000

  • Dividends received from the joint venture

    Number

    120,000

  • Closing carrying amount reported in the accounts

    Number

    1,700,000

  • Party without joint control: voting rights, board representation, participation in policy decisions

    Text

  • Separate financial statements: methods available and group policy

    Text

2

Supporting documents

Evidence

  • Documents obtained and referenced (statements of the joint venture, dividend statement, shareholders' agreement)

    EvidenceRequired

3

Analysis of the equity method and of the parties without joint control

Analysis

IFRS 11 §24IFRS 11 §25IFRS 11

  • Points examined: joint venturer and party without joint control

    ChecklistRequired

    • Interest of the joint venturer accounted for as an investment, under the equity method of IAS 28
    • Share of the profit for the period in the investor's profit
    • Dividends received as a reduction of the carrying amount
    • Party without joint control: IFRS 9, or IAS 28 if it has significant influence
    • Adjustments and impairment under IAS 28 (outside this workpaper)
4

Calculations

Calculations

IFRS 11 §24

  • Share of profit (profit × percentage)

    Calculation

    320,000

    Profit of the joint venture for the period ; Investor's percentage in the joint venture (%)

  • Share of loss (loss × percentage)

    Calculation

    Loss of the joint venture for the period ; Investor's percentage in the joint venture (%)

  • Closing carrying amount (opening + share of profit − share of loss − dividends)

    Calculation

    1,700,000

    Opening carrying amount of the investment ; Closing carrying amount reported in the accounts ; Share of profit (profit × percentage) ; − Share of loss (loss × percentage) ; − Dividends received from the joint venture

5

Illustrative entries

Entries

  • Entry: share of the profit of a joint venture

    Entry

    AccountDebitCredit
    Investment in the joint venture320,000
    Share of the profit of the joint venture320,000

  • Entry: share of the loss of a joint venture

    Entry

    Debit Share of the loss of the joint venture ← Share of loss (loss × percentage) ; Credit Investment in the joint venture ← Share of loss (loss × percentage)

  • Entry: dividend received from a joint venture

    Entry

    AccountDebitCredit
    Cash received120,000
    Investment in the joint venture (decrease)120,000
6

Judgments: significant influence and separate financial statements

Judgment

IFRS 11 §24IFRS 11 §25IFRS 11

  • Party without joint control: significant influence or not

    Judgment

    Significant influence: IAS 28 / No significant influence: IFRS 9 / Not applicable

    Professional judgment: significant influence is supported by the indicators taken together; the percentage of voting rights is only one indicator.

  • Rationale: indicators weighed together

    Text

  • Policy of the separate financial statements for the interest in a joint venture

    Judgment

    Cost / IFRS 9 / Equity method / Not applicable

    Professional judgment: the choice of method in the separate financial statements is a policy; IFRS 11 does not impose it.

  • Rationale: policy retained and consistent application

    Text

7

Items to document for the disclosures on joint ventures

Disclosure

IFRS 11 §24IFRS 11

  • Information to prepare on the joint venture (see IFRS 12)

    Checklist

    • Nature of the relationship, share held and measurement method
    • Summarised financial information of the material joint venture
8

Effect on the financial statements

FS impact

  • Effect derived from the entries

    Table

9

Conclusion

Conclusion

  • Equity-method carrying amount, standard applicable to the party without joint control and policy of the separate financial statements

    ConclusionRequired

10

Normative references

References

  • Normative references cited in this workpaper

    References

11

Checks and financial statement impact

  • Joint venture describedPass
  • Calculated carrying amount equals the reported amountPass
  • Profit share entry balancedPass
  • Loss share entry balancedNot evaluated
  • Dividend entry balancedPass
Assets
320,000
Liabilities
0
Profit or loss
320,000
OCI
0
Equity
320,000