Question

Does the required accounting treatment for an interest in a joint operation differ from the requirements for an interest in a joint venture and, if so, how do these requirements differ?

Answer 1

The required accounting treatment for an interest in a joint operation differs from the requirements for an interest in a joint venture. The various aspects of both are given below:

Joint operation

A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint operator recognises in relation to its interest in a joint operation:

1) Its assets, including its share of any assets held jointly

2) Its liabilities, including its share of any liabilities incurred jointly

3) Its revenue from the sale of its share of the output of the joint operation

4) Its share of the revenue from the sale of the output by the joint operation

5) Its expenses, including its share of any expenses incurred jointly.

A joint operator accounts for the assets, liabilities, revenues and expenses relating to its involvement in a joint operation in accordance with the relevant IFRSs.

Joint venture

A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

Each party to the joint venture recognizes an investment.

1. The investment is accounted for using the equity method.

2. The general requirements remain essentially unchanged from the existing guidance on equity-method accounting.

3. Joint ventures are joint arrangements which are structured through a separate vehicle that confers legal separation between the joint venturer and the assets and liabilities in the vehicle.

4. It is anticipated that many arrangements structured through a separate vehicle will be joint ventures.