JOINT ARRANGEMENT

PFRS 11

By: RMETERO
 Evaluation: OPERATION or VENTURE?
1. A joint arrangement that is not structured through a separate vehicle.
2. The assets and liabilities held in the separate vehicle are the parties assets and
liabilities.
3. The assets and liabilities held in the separate vehicle are the assets and
liabilities of the separate vehicle and not the assets and liabilities of the parties.
4. X and Y jointly establish a corporation C over which they have joint control.
There is a separate vehicle and legal form of the separate vehicle, a corporation.
5. X and Y jointly establish a corporation C over which they have joint control.
There is a separate vehicle and legal form of the separate vehicle, a corporation.
The contractual arrangement states that x and Y have rights to assets of C and
are obligated for the liabilities of C in a specified portion.
6. If the assessment of the legal form and the contractual terms if joint venture do
not specify.
7. Purpose and Design of Joint arrangement are Primarily aims to provide parties
with an output (parties have rights to substantially all of the economic benefits of
the assets)and Depends on the parties on a continues basis for settling its
liabilities.
JOINT ARRANGEMENT

The parties are bound by CONTRACTUAL

ARRANGEMENT.

The contractual arrangement gives two or

more parties JOINT CONTROL of the
arrangement.
Separate Vehicle

is a separately identifiable financial

structure
Includes
Separate legal entities
Entities recognized by statute
May be in a form of partnership or
corporation
Party to a joint arrangement

is an entity that participates in a joint

arrangement
Regardless it has JOINT CONTROL of the
arrangement
Contractual Arrangement

set out terms

Specify the following
Purpose, activity and duration
Appointment of members of BOD
Decision-Making Process
Capital or other contribution
Sharing of assets, liabilities, revenues, or
profit or loss
Joint Control

Contractually agreed
Control and relevant activities
Unanimous consent
Classification of Joint Arrangement

Established for a purpose

Established using different structures and
legal forms
Can be
JOINT OPERATION
JOINT VENTURE
Joint Operation

Is a joint arrangement whereby the parties that

have joint control of the management have
rights to the ASSETS, and obligation for the
LIABILITIES if the arrangement.
Parties are called JOINT OPERATORS.
Joint Venture

Is a joint arrangement whereby the parties that

have joint control of the arrangement have right
to the net assets of the arrangement.
Parties are called JOINT VENTURERS.
STRUCTURE OF JOINT ARRANGEMENT

Joint arrangement not structured through a

separate vehicle is a JOINT OPERATION.

Joint arrangement structured through a

separate vehicle
JONT VENTURE or JOINT OPERATION
STRUCTURE OF JOINT ARRANGEMENT

Joint arrangement structured through a

separate vehicle
Following factors to be considered:
Legal form of the separate vehicle
Contractual terms and conditions
Other facts and circumstances
JOINT OPERATION or JOINT VENTURER?
1. Legal Form of the separate Vehicle
Assessed to determine whether it gives parties
rights to net assets, or rights to the assets and
obligations for the liabilities of the arrangement.
The parties may conduct the joint arrangement
through a separate vehicle whose legal form
causes the separate vehicle to be considered in
its own right.
JOINT OPERATION or JOINT VENTURER?
Situation 1
The assets and liabilities held in the separate
vehicle are the parties assets and liabilities.

Situation 2
The assets and liabilities held in the separate
vehicle are the assets and liabilities of the
separate vehicle and not the assets and liabilities
of the parties.
JOINT OPERATION or JOINT VENTURER?
ANSWERS:

Situation 1 JOINT OPERATION

Situation 2 JOINT VENTURE

JOINT OPERATION or JOINT VENTURER?
Legal form of a separate vehicle may be
Corporation confers with a separation between
the parties and separate vehicle and rights of net
assets.
Partnership have unlimited liability often do not
confer separation between parties and the
separate vehicle and the partners have rights to
the assets and obligation for the liabilities except
for partnership (limited partnership).
JOINT OPERATION or JOINT VENTURER?
Legal form of a separate vehicle may be
Indicator that it is a Joint Venture.
Corporation confers with a separation between
the parties and separate vehicle and rights of net
assets.
Indicator that it is a Joint operation.
Partnership have unlimited liability often do not
confer separation between parties and the
separate vehicle and the partners have rights to
the assets and obligation for the liabilities except
for partnership (limited partnership).
JOINT OPERATION or JOINT VENTURER?
2. Contractual Terms
Should be examined to determine if they provide
the parties with rights to net assets or rights to the
asset and liabilities.
The contractual terms of the joint arrangement
may be reverse the effect of the legal form and
give the parties rights to the assets and
obligations for the liabilities
JOINT OPERATION or JOINT VENTURER?
2. Contractual Terms
Situation 1
X and Y jointly establish a corporation C over which
they have joint control. There is a separate vehicle
and legal form of the separate vehicle, a
corporation.
Additional info:
The contractual arrangement states that x and Y
have rights to assets of C and are obligated for the
liabilities of C in a specified portion.
JOINT OPERATION or JOINT VENTURER?
2. Contractual Terms
Answer
Situation 1 without additional information
JOINT VENTURE
Situation 1 with additional information
JOINT OPERATION

Reverse the effects of the legal form

JOINT OPERATION or JOINT VENTURER?
3. Other Facts and Circumstances
If the assessment of the legal form and the
contractual terms if joint venture do not specify ,
it may be presumed that the joint arrangement is
a JOINT VENTURE.
Other facts and circumstances to determine
whether the parties have the rights to the assets
and obligations for the liabilities which would
make it a JOINT OPERATION.
JOINT OPERATION or JOINT VENTURER?
3. Other Facts and Circumstances
Purpose and Design of Joint arrangement must
be properly understood
1. Primarily aims to provide parties with an output
(parties have rights to substantially all of the
economic benefits of the assets)
2. Depends on the parties on a continues basis for
settling its liabilities
If both characteristics are present, then it is
___________________.
JOINT OPERATION or JOINT VENTURER?
3. Other Facts and Circumstances
Purpose and Design of Joint arrangement must
be properly understood
1. Primarily aims to provide parties with an output
(parties have rights to substantially all of the
economic benefits of the assets)
2. Depends on the parties on a continues basis for
settling its liabilities
If both characteristics are present, then it is JOINT
OPERATION.
JOINT OPERATION or JOINT VENTURER?
Parties provide cash flows
If a joint arrangement depends on the parties on a
continues basis to settle liabilities, this would be
indicative of _______________.
But WHAT IF when the parties provide cash flows
only at the inception?____________________.
JOINT OPERATION or JOINT VENTURER?
Parties provide cash flows
If a joint arrangement depends on the parties on a
continues basis to settle liabilities, this would be
indicative of JOINT OPERATION.
But WHAT IF when the parties provide cash flows
only at the inception? Use JOINT VENTURE.
Accounting for JOINT VENTURE
Shall recognized its interest in a joint venture as
in investment
Shall account for that investment using equity
method.
Under the equity, on initial investment in joint
venture is initially recognized at cost, and
adjusted thereafter for the post-acquisition
change in the venturer's share of the joint
venture's net asset.
Accounting for JOINT OPERATION
The joint operator recognizes its:
Assets
Liabilities
Revenue
Share of the revenue
Expenses
Illustrative Problem:

REFER to page 256 JOINT OPERATION

REFER to page 260 JOINT VENTURE