Accounting for Special Transactions

Chapter 6 – Joint
Arrangements
PREPARED BY: ROSEANNE R. DELA CRUZ, CPA
 EVOLUTION OF THE STANDARDS
• PAS 31 Joint Ventures
• Before Jan. 1, 2013
• Types:
• Jointly Controlled Assets (JCA)
• Jointly Controlled Operations
(JCO)
• Jointly Controlled Entity (JCE)
• Line by line / Proportionate
consolidation
• One line consolidation /
Equity method
• PFRS 11 Joint Arrangements • PFRS for SME Sec. 15 Joint
• Starting Jan. 1, 2013 Venture
• Types: • Types:
• Joint Operation (JO) • Jointly Controlled Assets (JCA)
• Joint Venture (JV) • Jointly Controlled Operations
• Equity method (if silent) (JCO)
• Cost method • Jointly Controlled Entity (JCE)
• Fair value method • Equity method
• Cost method
• Other related standard • Fair value method
• PAS 28 (Investment in
associate and Joint Ventures)
PFRS 11 JOINT ARRANGEMENTS

• Joint arrangement – an arrangement in which two or more parties have joint control.
• Joint control – the contractually agreed upon sharing of control of an arrangement, which exists
only when decisions about the relevant activities require the unanimous consent of the parties
sharing control.
• Contract – includes the agreed sharing of control
• Unanimous consent – it prevents one party from acting unilaterally
• Relevant activities – activities that significantly affects the returns of the entity or arrangement
CHARACTERISTICS OF JOINT ARRANGEMENTS

• Despite the diverse forms and structures, all joint arrangements have two characteristics in
common:
• The parties are bound by a contractual arrangement
• The contractual arrangement gives two or more of those parties joint control of the arrangement.
CHARACTERISTICS OF JOINT ARRANGEMENTS

• Contractual arrangement
• Usually written (though not necessarily) i.e. formal contract, articles, by-laws
• Generally deals with:
• The purpose, activity and duration of the joint arrangement
• The appointment of the BOD or its equivalent
• The decision-making process
• The capital or other contributions required
• The sharing by the parties of the output, income, expenses or results of the joint arrangement
CHARACTERISTICS OF JOINT ARRANGEMENTS

• The contractual arrangement gives two or more of those parties joint control of the
arrangement.
• Unanimous consent on relevant activities (no single party is in position to control unilaterally the
joint arrangement)
 KEY ASPECTS OF JOINT CONTROL

• Contractually agreed
• The existence of contractual agreement distinguishes a joint arrangement from an investment in associate. If there is no
contractual agreement, then a joint arrangement does not exist.

• Control on relevant activities

• Examples of decisions about relevant activities include:
• Establishing operating and capital decisions of the arrangement including budgets (i.e oil and gas arrangement, approving capital
expenditure program for the next year)
• Appointing and numerating a joint arrangement’s key management personnel or service providers and terminating their service or
employment (i.e. appointing an oil filed services provider)

• Unanimous consent
• Parties to an arrangement have collective control over the arrangement, but no single party has control. Any party can
prevent any other parties from making unilateral decisions about the relevant activities without its consent.
ASSESSING JOINT CONTROL / JOINT
ARRANGEMENT
Does the contractual arrangement give all the
parties (or a group of parties) control of the joint
arrangement collectively?

Do the decisions about the relevant activities Outside the scope of PFRS
require the unanimous consent of all the parties that 11(not a joint arrangement)
collectively control the arrangement?

JOINT ARRANGEMENT
JOINT CONTROL AS COMPARED

• Joint control – the contractually agreed upon sharing of control of an arrangement, which
exists only when decisions about the relevant activities require the unanimous consent of the
parties sharing control.
• Significant influence – power to participate in the financial and operating policy decisions of
an investee but is not control or joint control over those policies.
• Control – power to govern the financial and operating policies of an investee so as to obtain
benefits from it.
 TYPES OF INVESTMENTS

Nature of relationship with Type of investment Interest in voting rights of Standard Accounting
investee investee

Regular investor FVPL or FVOCI asset Less than 20% PFRS 9 Fair value

Significant influence Investment in associate 20% to 50% PAS 28 Equity method

Control Investment in subsidiary 51% to 100% PFRS 3 and 10 Consolidation

Joint operation PFRS 11 and other relevant Recognize own assets,

PFRSs liabilities, revenue and
expenses plus share in the
assets, liabilities, revenue and
Joint control Contractually agreed expenses of the joint
operation.
Joint venture PFRS 11 and PAS 28 Equity method
EXAMPLES

• Case 1
• A, B and C has an arrangement whereby A has 50% voting rights, B has 30% and C has 20%.
The parties agreed that at least 75% of the voting rights are required to make decisions about
the relevant activities of the arrangement.

Analysis: A and B have joint control over the arrangement, because the decisions cannot be
made without both A and B agreeing.
EXAMPLES

• Case 2
• A, B and C has an arrangement whereby A has 50% voting rights, B has 25% and C has 25%.
The parties agreed that at least 75% of the voting rights are required to make decisions about
the relevant activities of the arrangement.

Analysis: A, B and C collectively control the arrangement, because to reach the 75% vote either
A and B or A and C should agree. But to be joint arrangement, the parties would need to
specify which combination the parties is required to agree unanimously on decisions about the
relevant activities of the arrangement.
EXAMPLES

• Case 3
• A and B each has 35% of the voting rights of an arrangement; the remaining 30% is widely
spread. Decisions about relevant activities require a majority of the voting rights.

Analysis: A and B have joint control only if the contractual arrangement specifies that decisions
require both A and B agreeing. This is because a majority vote can be reached either in the
combination of A and other parties or B and other parties.
 TYPES OF JOINT ARRANGEMENT

• 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.
• Parties: Joint operators
• Separate vehicle: with or without
• Set-up: alike with partnership (unlimited liability)

• Joint venture – a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the
arrangement.
• Parties: Joint venturers
• Separate vehicle: with
• Set-up: alike with Corporation (limited liability)

*Party to a joint arrangement – an entity that participates in a joint arrangement regardless of whether that entity has a joint control of the
arrangement.
*Separate vehicle – a separately identifiable financial structure, including separate legal entities or entities recognized by statute, regardless of
whether those entities have a legal personality.
TYPES OF JOINT ARRANGEMENT

Structure of the joint arrangement

Not structured through a separate Structured through a separate

vehicle vehicle

An entity shall consider:

• The legal form of the separate vehicle
• The terms of the contractual arrangement
• When relevant, other facts and
circumstances

Joint Operation Joint Venture

Accounts assets , liabilities and

Account using equity method
corresponding revenues and
(PAS 28)
expenses
ACCOUNTING FOR JOINT OPERATION

• Joint Operation – PFRS 11

• A joint operator recognizes in relation to its interest in a joint operation
• its assets, including its share of any assets held jointly;
• its liabilities, including its share of any liabilities incurred jointly;
• its revenue from the sale of its share of the output of the joint operation;
• its share of the revenue from the sale of the output by the joint operation; and
• its expenses, including its share of any expenses incurred jointly
ACCOUNTING FOR JOINT OPERATION

• Joint Operation (Traditional)

• With separate books
• JO books (accounted like partnership)
• Joint operator books

• Without separate books

• Joint operator books
• Partial
• Full
 JOINT OPERATION – NO SEPARATE BOOKS

• JO credit balance = profit Joint Operation

Merchandise x x Merchandise
• JO debit balance = loss contributions withdrawals
• Unsold merchandise (Ending inventory) is placed on Purchases and x x Purchase returns,
credit side to reflect cost of goods sold Freight in discounts and
allowances
• Personal accounts are used. (Receivable to/Payable to) Sales returns, x x Sales and other
discounts and items of income
• Manager – management fee - expense of joint operation, allowances
income of manager (joint operator) Expenses x x Unsold merchandise
• Manager uses “JO” label for assets other than (Ending inventory)
merchandise
 JOINT OPERATION – NO SEPARATE BOOKS

• Cost and expenses = Merchandise contributions, Joint Operation

Purchases and Freight in Cost and expenses x x Contra expenses

• Contra expenses = Purchase returns, discounts and Contra revenue x x Revenue and gains
allowances
• Revenue and gains = Sales and other items of income x Ending inventory

• Contra revenue = Sales returns, discounts and allowances

 JOINT OPERATION – NO SEPARATE BOOKS

A B C
Transactions
Account title Dr Cr. Account title Dr Cr. Account title Dr Cr.
a. A transfers inventory costing P100 JO 105 JO 105 JO 105
to B (the appointed manager). A Inventory 100 Payable to A 105 Payable to A 105
pays freight of P5. Cash 5
JO 200 JO-Cash 200 JO 200
b. C transfers cash of P200 to B.
Payable to C 200 Payable to C 200 Cash 200
c. B purchases inventory costing JO 50 JO 250 JO 50
P250. Of that amount, P50 are on Payable to B 50 JO-Cash 200 Payable to B 50
account of B. A/P 50
Receivable from B 800 JO-Cash 800 Receivable from B 800
d. B makes cash sales of P800.
JO 800 JO 800 JO 800
e. B pays operating expenses of P55 JO 55 JO 55 JO 55
using his own cash. Payable to B 55 Cash 55 Payable to B 55
*Ending inventory was charged to C when the joint operation was liquidated.
 JOINT OPERATION – NO SEPARATE BOOKS

JO JO-A JO-B JO-C

105 50 200 30
105 800 140
140 55
200 30 EI 245 0 140
50 245 0 340 30
310
55

410 830
profit 420
• Debit balance means cash receipt (i.e. net investment and share in profit)
• Credit balance means payment
 JOINT OPERATION – NO SEPARATE BOOKS

• Book of B (Manager) • Book of A/C

Payable to A Payable to C JO-Cash Payable to B

105 30 200 200 200 50
140 140 800 55
1000 200
140
1000 200
245
310
0 245 30 340 1000 755 0 245
245 310 245 B 245
 JOINT OPERATION – WITH SEPARATE BOOKS

Joint Operation
• JO transactions are recorded in the separate books in
Contributions and x x Sales and other
regular manner similar to an ordinary business investments income received

• Joint operators record only their transactions in their Costs and expenses x x Withdrawals of
paid for the JO contributions or
respective books. investments
Share in profit of JO x x Share in loss of JO
• Personal accounts and “JO” labels are not used.
 JOINT OPERATION – WITH SEPARATE BOOKS

Joint Operation A B C
Transactions
Account title Dr Cr Account title Dr Cr. Account title Dr Cr. Account title Dr Cr.
a. A transfers inventory costing Inventory 105 JO 105
P100 to B (the appointed manager). A, Capital 105 Inventory 100
A pays freight of P5. Cash 5
Cash 200 JO 200
b. C transfers cash of P200 to B.
C, Capital 200 Cash 200
c. B purchases inventory costing Purchases 250 JO 50
P250. Of that amount, P50 are on Cash 200 Cash 50
account of B. B, Capital 50
Cash 800
d. B makes cash sales of P800.
Sales 800
e. B pays operating expenses of Expenses 55 JO 55
P55 using his own cash. B, Capital 55 Cash 55
*Ending inventory was charged to C when the joint operation was liquidated.
 JOINT OPERATION – WITH SEPARATE BOOKS

Income Summary A, Capital B, Capital C, Capital

BI 105 800 Sales 105 50 30 200
Purchases 250 30 EI 140 55 140
Expenses 55 140

410 830 0 245 0 245 30 340

Profit 420 245 245 310
PROBLEM 1

Joint Operation
Cost and Expenses 920 Contra Expenses
Contra revenue 800 Revenue and gains
210 Ending inventory
920 1010
Profit 90

Cost and expenses = 200 + 400 + 20 + 100 + 200

Contra expenses
Revenue and gains = 800
Contra revenue
Ending inventory = 210
PROBLEM 1

PASB = (P-S) / 1+B

= (90-30) / 1.25
= 48

Profit 90
Salary 30
After salary 60
Bonus (squeeze) 12
After Bonus 48
PROBLEM 1

Capital contribution 300 420

Profit allocation A B C 90
1. Salaries 30 30
2. Bonus 12 12
3. Interest 30 42 72
4. Balance -8 -8 -8 -24
Total 22 34 34 90

JO-A JO-B JO-C

300 420 200 210
22 34 34
322 0 454 0 234 210
PROBLEM 2

Joint Operation
Cost and Expenses 380 Contra Expenses
Contra revenue 430 Revenue and gains
Ending inventory
380 430
Profit 50

Cost and Expenses 100 + 80 +200

Contra revenue
Contra Expenses
Revenue and gains 240 + 180 + 10
Ending inventory
PROBLEM 2

Profit allocation A B 50
10% of Purchases 10 8 18
20% of Sales 48 36 84
Balance -26 -26 -52

Total 32 18 50

JO-A JO-B
100 240 80 180
200 18 10
32

332 240 98 190

92 92
PROBLEM 3

JO
Pay. to A 105 695 Rec. from B
Pay. To C 200 30 EI

305 725
profit 420

DR. CR.
JO 105
Account with A
Payable to A 105
Receivable from B 695
Account with B
JO 695
JO 200
Account with C
Payable to C 200
PROBLEM 3

JO-A JO-B JO-C

105 695 200
140 140 140
245 0 140 695 340 0
555

Payable to A Payable to C Receivable from B

105 30 200 695 140
140 140
0 245 30 340 695 140
310 555
FINANCIAL STATEMENTS OF PARTIES TO A JOINT
ARRANGEMENT
• A joint operator accounts for the assets, liabilities, revenues and expenses relating to its
involvement in a joint operation in accordance with the relevant PFRSs.
• The acquirer of an interest in a joint operation in which the activity constitutes a business, as
defined in PFRS 3 Business Combinations, is required to apply all of the principles on
business combinations accounting in PFRS 3 and other PFRSs with the exception of those
principles that conflict with the guidance in PFRS 11. These requirements apply:
• To the initial acquisition of an interest in a joint operation, and the acquisition of an additional
interest in a joint operation (in the latter case, previously held interests are not remeasured).
• when an existing business is contributed by one of the parties in the formation of a joint operation.
ADDITIONAL PROBLEMS

Own revenue 1,000,000

Share in JO's revenue 200,000
1,200,000
ADDITIONAL PROBLEMS
ADDITIONAL PROBLEMS
ADDITIONAL PROBLEMS
ADDITIONAL PROBLEMS
 ADDITIONAL PROBLEMS

JO JO-Aljon JO-Elerie JO-Mac

Dr Cr Dr Cr Dr Cr Dr Cr
a 10,000 10,000
b 100,000 100,000
5,000 5,000
c 150,000 100,000 50,000
d 490,000 170,000 260,000 60,000
e 3,000 3,000 9,000 3,000
5,000 5,000
f 2,500 2,500
Balance 265,000 497,500 210,000 175,500 50,000 263,000 14,000 68,000
Net income 232,500 93,500 112,500 26,500
Balance 497,500 497,500 303,500 175,500 162,500 263,000 40,500 68,000
Cash settlement 128,000 100,500 27,500

Profit allocation
Aljon Elerie Mac 232,500
Required: Payment to Mac 2,500 2,500
1. Profit/loss Commission 68,000 104,000 24,000 196,000
2. Cash settlement Balance 25,500 8,500 34,000
Total 93,500 112,500 26,500 232,500
JOINTLY OPERATIONS

• Under PFRS 11, the following are joint operations:

• Jointly controlled assets
• Jointly controlled operations
JOINTLY CONTROLLED ASSETS

• Separate financial statements of each operator will show:

• 1. Its share of the joint assets, any liabilities it has incurred directly.
• 2. Its share of any joint liabilities together with any income from the sale or usage of its
share of the output of the joint operation, and
• 3. Any share of the expenses incurred by the joint operation.
JOINTLY CONTROLLED ASSETS
JOINTLY CONTROLLED OPERATIONS

• Each operator will show in its separate financial statements:

• 1. The assets that it controls.
• 2. The liabilities that it incurs, together with the expenses that it incurs, and
• 3. Its share of the income from the sale of goods or services.
JOINTLY CONTROLLED OPERATIONS
JOINT VENTURE

• 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.
• According to PFRS 11, if there is no contractual arrangement to establish the joint
control, the investments are not deemed to be joint ventures.
JOINT VENTURE

• A joint venturer recognizes its interest in a joint venture as an investment and shall account
for that investment using the equity method in accordance with PAS 28 Investments in
Associates and Joint Ventures unless the entity is exempted from applying the equity method
as specified in that standard.

• A party that participates in, but does not have joint control of, a joint venture accounts for its
interest in the arrangement in accordance with PFRS 9 Financial Instruments unless it has
significant influence over the joint venture, in which case it accounts for it in accordance with
PAS 28.
JOINT VENTURE

• A contractual arrangement usually include:

• The activity and duration of the venture
• Voting rights of venturers
• Capital contributions
• Profit-sharing arrangements
• The appointment of operators or managers
• The policy decisions which require the consent of all ventures
JOINT VENTURE

• Potential Benefits
• Joint ventures can save you money when businesses share expenses.
• Joint ventures can save you time when businesses share the workload.
• Your business could offer new products and services by doing joint ventures. Combining your
business with another will make you stronger. This is a good way to beat your competition.
• Joint ventures can make your sales offer more appealing to customers by offering more
products or services.
• Doing joint ventures with well-known businesses can give your business more credibility.
Joint ventures can always lead to profitable partnerships
ACCOUNTING FOR JOINT VENTURE

• PFRS 11 prescribes that joint venturer shall recognize its interest in a joint venture as an
investment in joint venture and shall account for that investment using the equity method
in accordance with PAS 28, Investment in Associates and Joint Ventures, unless the entity
is exempted from applying the equity method as specified in that standard (i.e. mutual
funds, unit trusts)
• The use of equity method will result in recognizing only a single item investment in joint
venture in the Statement of Financial position, and a single line item for the proportionate
share of net income and changes in equity in the Statement of Comprehensive income
INVESTMENT IN JOINT VENTURES

• Presentation in the statement of financial position

• Investments ----- equity method ------ non-current assets

• However, when such investments are classified as held for sale in accordance with PFRS 5
(Non-current assets held for sale and Discontinued operations), they are presented as current
assets.
ACCOUNTING FOR JOINT VENTURE

• Joint Venture – PAS 28/PAS 27 Investment in Venture

Initial and additional investment
Share in net income
Share in increase in OCI
Share in decrease in OCL
Impairment recovery
Dividends (Cash/Property)
Share of net loss
Share in decrease in OCI
Share in increase in OCL
Impairment loss of investment

• Share in the adjusted net income / net loss (after intercompany transactions)
ACCOUNTING FOR JOINT VENTURE

• Joint Venture – PAS 28/PAS 27 Investment income

Amortization of excess Share in net income
Impairment loss

• Share in the adjusted net income (after intercompany transactions)

TRANSACTIONS BETWEEN THE VENTURER AND
THE JOINT VENTURE
• Sale of inventory
• Sale of depreciable/ non-depreciable assets

• Downstream sale
• Venturer (seller) --------> Joint venture (buyer)

• Upstream sale
• Joint venture (seller) ----------> Venturer (buyer)

• Core Concept: The share in profit or loss of the joint venture is recognized only to the extent of unrelated investors’
interests in the joint venture.
• Downstream – eliminate entire unrealized profit/loss
• Upstream – eliminate investor’s share in the unrealized profit/loss
TRANSACTIONS BETWEEN THE VENTURER AND
THE JOINT VENTURE
• Impairment on assets in downstream and upstream sales
• Recognized in full by the joint venture.
TRANSACTIONS BETWEEN THE VENTURER AND
THE JOINT VENTURE
Basic Formula:
Net income x % of ownership
Less: Unrealized profit on upstream sale x % of ownership
Add: Realized profit on upstream sale x % of ownership
Less: Unrealized profit on downstream sale
Add: Realized profit on downstream sale
Share in net income
TRANSACTIONS BETWEEN THE VENTURER AND
THE JOINT VENTURE
• Intercompany transactions
JOINT VENTURE’S LOSSES

• When the equity method is being used by the joint venturers, share of losses of the joint venture
equals or exceeds its interest in joint venture, the joint venturer should discontinue including its
share of further losses. The investment is reported at zero value. The interest in the joint venture
is normally the carrying amount of the investment, but it also includes any other long-term
interest (i.e preference shares or long-term notes receivables or loans.)
• After the joint venturer’s interest is equal to zero, additional losses should only be recognized
where joint venture has incurred or made payments on behalf of the joint venturer (i.e.
guaranteed amounts owed to third parties by the joint venture)
• Should the joint venture return to net income, the joint venturer may resume recognizing its
share in net income only after they equal the share of losses not recognized.
GOODWILL AND IMPAIRMENT TESTING

• Goodwill may arise if an investor purchases interest in a joint venture from other
investors, and it pays premium over its share of the net assets of the joint venture.
• Goodwill on acquisition of a joint venture is included in the carrying amount of the
investment, and is not tested separately.
• The entire carrying amount of the investment is tested for impairment by comparing its
recoverable amount (fair value less cost to sell or value in use, whichever is higher) and
its carrying amount.
SAMPLE PROBLEM

Investment in DD
acquisition 2,016,000 216,000 dividend
share in income 432,000 46,800 amortization
2,448,000 262,800
balance 2,185,200

Investment income
432,000 share in income
amortization 46,800
46,800 432,000
385,200
 SAMPLE PROBLEM

Jinx Inc. purchased 30% of Quil Co. for P1M and applies the equity method. The book value of the net assets acquired was
P3M. The difference was attributable to Quil’s machinery exceeding book value. The machinery has remaining life of 10
years. During the current year, Jinx buys inventory costing P54,000 and then sells it to Quil for P90,000. At year end, Quil
still holds P20,000 of merchandise. Quil reported net income of P1,000,000 and declared and paid cash dividends of
P100,000. Determine the share in net income, investment balance and net investment income.

Net income 1,000,000 Investment in Quil Investment income

30% acquisition 1,000,000 30,000 dividiend 292,000 share in income
Share in net income 300,000 share in income 292,000 10,000 amortization amortization 10,000
Less: Intercompany unrealized profit 8,000 10,000 292,000
Adjusted share in net income 292,000 1,292,000 40,000 282,000
balance 1,252,000
 SAMPLE PROBLEM

Jinx Inc. purchased 30% of Quil Co. for P1M and applies the equity method. The book value of the net assets acquired
was P3M. The difference was attributable to Quil’s machinery exceeding book value. The machinery has remaining life
of 10 years. During the current year, Quil buys inventory costing P54,000 and then sells it to Jinx for P90,000. At year
end, Jinx still holds P20,000 of merchandise. Quil reported net income of P1,000,000 and declared and paid cash
dividends of P100,000. Determine the share in net income, investment balance and net investment income.

Sales 90,000 Investment in Quil Investment income

Cost 54,000 acquisition 1,000,000 30,000 dividiend 297,600 share in income
GP/Mark up 36,000 40% share in income 297,600 10,000 amortization amortization 10,000
10,000 297,600
EI 20,000 1,297,600 40,000 287,600
Unrealized Profit 8,000 balance 1,257,600
Ownership 30%
Intercompany unrealized profit 2,400
SAMPLE PROBLEM

Dom Company owns 30% of Helen Company and applies the equity method. On Jan. 3, 2018,
Dom sold an equipment costing P600,000 to Helen for P800,000. The equipment has a remaining
life of 5 years. What amount of unrealized gain must Dom defer in reporting this investment using
the equity method?
Sales 800,000
Cost 600,000
GP/Mark up 200,000
Undepreciated portion 4/5
Intercompany unrealized profit 160,000
SAMPLE PROBLEM

Jen Company owns 30% of Kim Company and applies the equity method. On Jan. 3, 2018, Kim
sold an equipment costing P600,000 to Jen for P800,000. The equipment has a remaining life of 5
years. What amount of unrealized gain must Jen defer in reporting this investment using the equity
method?
Sales 800,000
Cost 600,000
GP/Mark up 200,000
Undepreciated portion 4/5
Intercompany unrealized profit 160,000
Ownership 30%
Share on intercompany unrealized profit 48,000
JOINT VENTURE’S LOSSES

• Example: Share on loss:

Investment in Joint venture = P 1,625,000; 30% 2018 - 900,000

2019 - 600,000
Year Net income (Loss) 2020 - 300,000
2021 665,000
2018 (3,000,000)
2019 (2,000,000) Investment in Joint Venture
1,625,000 900,000
2020 (1,000,000) 600,000
125,000
2021 2,800,000 1,625,000 1,625,000
-
665,000
665,000
PFRS FOR SMES

• Forms of Joint Venture

• 1. Jointly controlled operations (JCO) – it involves the use of the assets and other
resources of the ventures rather than the establishment of a corporation, partnership or other
entity, or a financial structure that is separate from the venturer themselves.
• 2. Jointly controlled assets (JCA) – the assets are used to obtain benefits for the
venturers.
• 3. Jointly controlled entities (JCE) – which involves the establishment of a corporation,
partnership or other entity in which each venturer has an interest.
PFRS FOR SMES

• Accounting for joint venture involves the following data:

• 1. Joint Venture Profit or Loss
• a. Completed Joint Venture
• b. Uncompleted Joint Venture
• 2. Cash settlement to participants
PFRS FOR SMES

• There are two general methods of accounting for the joint venture, these are
(1) Separate set of books is maintained for the joint venture and
(2) No separate set of books is maintained for the joint venture.
JOINTLY CONTROLLED ENTITIES

• A jointly controlled entity maintains its own accounting records and prepares and presents
financial statements like any other enterprises in conformity with government
requirements and Philippine Financial Reporting Standards (PFRS).
• Each venturer normally would contribute assets and other resources to the jointly
controlled entity. These assets and resources included in the accounting records of the
venturer and recognized as an investment in the jointly controlled entity.
SEPARATE SET OF BOOKS FOR JOINTLY
CONTROLLED ENTITY
• All joint venture transactions are recorded in the joint venture books maintained by the
manager/venturer. The books will carry the usual accounts for assets, liabilities, capital,
revenues and expenses.
• Books of the Venturers
-each venturer maintains an investment account “Investment in Joint Venture” in
its own books for its share of the joint venture capital.
BOOKS OF THE VENTURERS

Investment in Venture
Initial and additional investment Withdrawals
Share in the profits Share of losses
DISCLOSURES ON FINANCIAL STATEMENTS OF
PARTIES TO A JOINT ARRANGEMENT
• Disclosure
• There are no disclosures specified in IFRS 11. Instead, IFRS 12 Disclosure of Interests in Other
Entities outlines the disclosures required.
Accounting for Special Transactions

END OF PRESENTATION
PREPARED BY: ROSEANNE R. DELA CRUZ, CPA