IAS 31 – Interests in Joint Venture
Objective: To prescribe the accounting treatment required for interests in joint ventures. [ B + C => A + "An Agreement For Control" ] Applies to all investments in which investor has joint control,
unless the investor is:
1. Venture Capital Firm
2. Mutual Funds.
3. Unit Trust.
The key characteristic of a joint venture is a contractual arrangement to share control. Joint venture may be classified as jointly controlled operations, jointly controlled assets or jointly controlled entities.
1. Joint Controlled Operation – Venture recognizes the assets it controls and expenses and liabilities it incurs and its share of income earned, in both separate and consolidated financial statement.
2. Jointly Controlled Assets Venture – recognizes its share of the joint assets, liabilities, share of expenses, income from the sale, or the use of its share of the output of the joint venture.
3. Jointly Controlled Entities - two accounting policies are permitted:
A. Proportionate consolidation under this method the ventures' balance sheet include its share of the assets that controls jointly and its share of the liabilities for which it is jointly responsible the income statement includes its share of income and
B. Equity methods – that applies on Investment in Associates IAS 28.
The Differences and Similarities between US GAAP Law and IFRS
Significant Differences:
IFRS | US Law GAAP | |
Jointly controlled entities may be accounted for either by proportionate consolidation or using the equity method | Unlike IFRS generally jointly controlled entities are accounted for using the equity method. Proportionate consolidation is allowed only in certain industries for unincorporated ventures. | Joint Controlled Entity Method |
IFRS | US Law GAAP | |
Significant influence is when an entity holds 20%-50% of the voting rights of another entity. | Like IFRS significant influence is when an entity holds 20%-50% of the voting rights of another entity. | Significant Influence |
A joint venture is an entity, asset or operation that is subject to contractually established joint control | Unlike IFRS US GAAP does not define a joint venture other than a corporate joint venture. | A Joint Venture Entity |
Jointly controlled entity's accounting policies must be consisted with those of its investor. | Unlike IFRS jointly controlled entity's accounting policies do not needed to be consisted with those of its investor. | Accounting Policies |
The reporting date of an jointly control entity may not differ from the investor's more than three months. Adjustment are made for the effects of significant events and transaction between the two dates | Like the reporting date of an jointly control entity may not differ from the investor's more than three months. Adjustment are made for the effects of significant events and transaction between the two dates | The Reporting Date of joint Venture Entities' |
Unrealized profit or losses on transaction with jointly controlled entities are eliminated to the extent of the investor's interest in the investee. | Like IFRS unrealized profit or losses on transaction with jointly controlled entities are eliminated to the extent of the investor's interest in the investee. | Transaction between joint Venture Entity's |
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