Joint Arrangement

• The governing standard for joint arrangement is PFRS 11
• A joint arrangement is an arrangement in which two or more parties have joint control.
• Characteristics of a joint arrangement:

  • The parties are bound by a contractual arrangement
  • The contractual arrangement gives two or more pf those parties joint control of the arrangment
• 2 types of joint arrangement:

  1. Joint Operation
  2. Joint Venture
• The contractual arrangement is usually in writing and it can be evidenced in several ways, such as (1) a contract between two or more parties; (2) minutes or documented discussion b/w the parties (3) articles; and (4) charter or by-laws of the joint arrangement.
• The accounting treatment for joint operation is to recognize share in assets, liabilities, revenues, and expenses.
• The equity method shall be used for joint venture.
• Joint control - it is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
• 2 types of parties:

  1. Parties that have joint control of a joint arrangement (either joint operator or joint venturer), and
  2. Parties that participate in, but do not have joint control in a joint arrangement
• The requirement for unanimous consent means any party with joint control of the arrangement can prevent any of the other parties, or a group of the parties, from making unilateral decisions without its consent.
• A joint operation is 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. The parties are known as joint operators.
• A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. The parties are known as joint venturers.
• A joint arrangement not structured through a separate vehicle is a joint operation.
• A joint arrangement structured through a separate vehicle may be either a joint operation or a joint venture depending on whether the parties have rights to the underlying assets or just the net assets of the vehicle.
• In using the equity method for joint venture, the investment is initially recorded at cost. The carrying amount is then increased or decreased by the share in comprehensive income or loss and dividends received from the joint venture.