IFRS 11 Joint Arrangements

IFRS 11 Joint Arrangements

IFRS 11 Joint Arrangements


A joint arrangement (allow parties to share risks and costs; access to new technology and markets) is an arrangement of which two or more parties have joint control.

  • Arrangement - contractual arrangement where parties are bound by, and if there are any changes in the arrangement, reassessment of joint control is needed.
  • Two or more parties – not all parties involved in the joint arrangement need to have joint control over the arrangement, ie three parties are involved where only two have joint control over the arrangement is also within the scope.
  • Joint – unanimous consent of those parties with joint controls, ie no single party can dominate the relevant activities
  • Control – has power instrument to direct relevant activities which significantly affect the returns of the arrangements.

(IFRS 11 para 4-13)


Under the joint arrangement, A, B and C have 50%, 30% and 20% shareholdings. Decisions about relevant activities require at least 75% voting shares.


Who have joint control over the arrangement?


  • A and B have joint control over the arrangement as A+B shareholdings = 80% > 75%.
  • However, A and C or B and C do not have joint control over the arrangement as the combination shareholdings is less than 75%.

Classification of joint arrangements

Joint operation:

  • A joint arrangement to parties agreeing the output, revenue, operating costs are shared. For example, in the joint arrangement regarding the factory, brand belongs to party A, production facility belongs to party B etc.
  • Each joint operator should account for its share of joint asset, liabilities, income and expenses according to the joint arrangement (not necessarily per their shareholdings.)
  • If an incorporated entity is set up where all the outputs need to be purchased by parties in the joint arrangement, ie the new entity’s cash flows depend on party A and B – joint operation.

Joint venture:

  • This is where a separate vehicle (such as incorporated entity) is set up by two or more parties with joint control over the arrangement.
  • However, parties do not have interests in the asset of the arrangement such as rights, title or ownership.
  • Parties are only liable to their respective obligations.
  • Therefore, profits (revenue minus costs) are shared on the basis of each party’s shareholdings, however, this is not the decisive factor to distinguish a joint operation and joint venture. The key is to check whether assets belong to different parties and whether parties need to assume the whole liability from the arrangement.


Party A and B set up an incorporated entity C where all C’s output need to be purchased from party A and B at a ratio of 50:50.


Whether the arrangement is joint operation or joint venture?


  • Joint operation.
  • Although a vehicle is set up, however, all outputs need to be sold to party A and B, ie C’s cash flows depend on party A and B.
  • Party A and B have all the economic benefits of assets of C.

Accounting treatment:

Exam Rehearsal Question – Robby

Robby has a 40% share of a joint operation, a natural gas station. Assets, liabilities, revenue and costs are apportioned on the basis of shareholding.

The following information relates to the joint arrangement activities:

The natural gas station cost $15 million (where Robby only contributed 40%, ie paying $6 million) to construct and was completed on 1 June 2014 and is to be dismantled at the end of its life of 10 years. The present value of this dismantling cost to the joint arrangement on 1 June 2014, using a discount rate of 5%, was $2 million.

In the year, gas with a direct cost of $16 million was sold for $20 million. Additionally, the joint arrangement incurred operating costs of $0·5 million during the year.

The revenue and costs are receivable and payable by the other joint operator who settles amounts outstanding with Robby after the year end.


How to deal with joint operation in the consolidated statement of financial position for the year ended 1st June 2015 and consolidated statement of profit or loss for the year ended 1st June 2015?


W1 - PPE:

On 1 June 2014 ($15m x 40% (shareholding))


Dismantling costs ($2m x 40%(shareholding))

Dr PP&E at cost $0.8m

Cr Provision liability $0.8m*


Total capitalised amount


Depreciation expense ($6.8m/10yrs)


Carrying value on 1 June 2015 – Shown in CSFP


W2 - *Provision liability – subsequent measurement:


Opening balance

Finance cost (5%)

Closing balance





Therefore, on 1 June 2015, the carrying value of provision liability is $0.84m.

W3 - Sales (Second paragraph):

Dr Receivables ($20m x 40%) $8m

Cr Sales revenue $8m

W4 - Payables (Direct cost and operating cost):

Dr Expenses ($16m x 40% + $0.5m x 40%)=$6.6m

Cr Payables $6.6m

Statement of profit or loss:


Sales (20 x 40%) (W3)


Expenses (16 x 40%+0.5 x 40%) (W4)


Depreciation expense($6.8m/10 years) (W1)


Unwinding of dismantle costs ($0.8m x 5%) (W2)


Profit (Transferred to retained earnings W5)


Exam Rehearsal Question:


Digiwire Co has developed a new business model whereby it sells music licences to other companies which then deliver digital music to consumers.

Digiwire Co has agreed to work with TechGame Co to develop a new music platform. On 31 December 20X6, the companies created a new entity, FourDee Co, with equal shareholdings and shares in profit. Digiwire Co has contributed its own intellectual property in the form of employee expertise, cryptocurrency with a carrying amount of $3 million (fair value of $4 million) and an office building with a carrying amount of $6 million (fair value of $10 million). The cryptocurrency has been recorded at cost in Digiwire Co’s financial statements. TechGame Co has contributed the technology and marketing expertise. The board of FourDee Co will comprise directors appointed equally by Digiwire Co and TechGame Co. Decisions are made by a unanimous vote.


(i) The classification of the investment which Digiwire Co has in FourDee Co. (3 marks)

(ii) the derecognition of the assets exchanged for the investment in FourDee Co and any resulting gain/loss on disposal in the financial statements of Digiwire Co at 31 December 20X6 (3 marks)



Digiwire Co and TechGame jointly control FourDee Co and it appears as though the arrangement is a joint venture as the parties have joint control of the arrangement and have rights to the net assets of the arrangement.

Joint control 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. This is the case with FourDee Co.

A joint venturer recognises its interest in a joint venture as an investment and accounts for that investment using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures unless the entity is exempted.


Digiwire Co needs to de-recognise the assets it is contributing to FourDee Co. The carrying amount of $6 million of the property is derecognised but the intellectual property of Digiwire Co has been generated internally and does not have a carrying amount. The cryptocurrency is recorded as an asset in the financial statements of Digiwire Co at $3 million but will be valued at $4 million, its fair value in the financial statements of FourDee Co.

When a joint venturer contributes a non-monetary asset to a joint venture in exchange for an equity interest in the joint venture, the joint venturer recognises a portion of the gain or loss on disposal which is attributable to the other parties to the joint venture (except when the contribution lacks commercial substance).

Digiwire Co to limit the profit on disposal of its non-monetary assets to 50%. Effectively, Digiwire has only disposed of 50% of the asset contributed to the joint venture. Thus the carrying amount of the joint venture in Digwire’s financial statements at 31 December 20X6 will be $11·5 million (($6 + $3 carrying amounts derecognised for property and cryptocurrency) + ((4 – 3)/2) + ((10 – 6)/2)). A gain of $2·5 million will be recorded in profit or loss.

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Categories: : Strategic Business Reporting (SBR)