AFAR 06-06 JOINT ARRANGEMENT

IFRS 11: Equity vs. Cost vs. Fair Value

IFRS 11 supersedes IAS 31 (Interest in JV) and SIC 13 (Jointly Controlled Entities)
IAS 31 & SIC 13 IFRS 11
Jointly Controlled Assets
Joint Operations
Jointly Controlled Operations
Jointly Controlled Entities Joint Ventures

IAS 24 Related Parties

Ventures and Joint
Venture
Venturer and Venturer
Joint Control – Collective Control of the Arrangement; and
unanimous consent
Rights to the:
Net Assets
Assets and Liabilities
Related Party/ies?
Yes allocate UG/UL on Related Party Transactions
No No Separate Vehicle Joint Operation
W/ Separate Vehicle Joint Venture/Joint
Operation
Separate vehicle – a newly formed entity (juridical entity)
1. Legal Form
Joint Venture 2. Terms of Arrangement
Joint Operation 3. Other Factors or circumstances
 Joint Venture Subject to Impairment Loss?
Publicly-listed Equity Method only Equity Method Yes
Corporations or Full
PFRS Cost Method Yes

SMEs Any of the ff: FV Method No – because the amount of UG/UL

• Equity Method represents the change in Carrying
• Cost Method Value of the Asset
• FV Method
 Equity Method Applicable computation for:
Purchase Price XXX • IFRS 11 – CV of Investment in JV
• IFRS 3 & 10 – CV of Investment in
+ Transaction Cost XXX Subsidiary
+/- (Investment Income) • IAS 28 – CV of Investment on
Share in Net Income or Share XXX (XXX) Associate
in Net Loss
- Dividend Income (XXX)
- Impairment Loss (XXX) Investment Income includes:
• Share in Net Income or Share in
+ Gain on Reversal XXX Net Loss
Carrying Value of Investment XXX • Amortization of undervalued or
overvalued asset
P/L - Equity Method • Realized Profit or Realized Loss
(Investment Income) Share in • Unrealized Gain or Unrealized
Net Income or Share in Net XXX (XXX) Loss
Loss
Journal Entry:
- Impairment Loss (XXX)
Cash or Receivable XXX
+ Gain on Reversal XXX Investment XXX
P/L – Equity Method XXX
 Cost Method
P/L - Cost Method
Purchase Price XXX
Dividend Income XXX
+ Transaction Cost XXX
- Impairment Loss (XXX)
- Impairment Loss (XXX)
+ Gain on Reversal XXX
+ Gain on Reversal XXX
P/L – Cost Method XXX
Carrying Value of Investment XXX

Fair Value Method P/L - FV Method

Purchase Price XXX Dividend Income XXX
+ Unrealized Gain XXX - Transaction Cost (XXX)
- Unrealized Loss (XXX) + Unrealized Gain XXX
Carrying Value of Investment XXX - Unrealized Loss (XXX)
P/L – FV Method XXX
CV of Investment = FV at December 31

If an SME opted to use Cost Method but there is a published price quotation or quoted market price -> the standard
requires the entity to use FAIR VALUE METHOD
If an SME opted to use FV Method but the FV cannot be determined reliably without undue cost and effort -> the
standard requires the entity to use COST METHOD