IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley IFRS: Practical Implementatio n Guide and Workbook

Facts Albion and Board decide to form a joint venture but do not sign a written agreement regarding the con– trol of the joint venture. However, minutes of the meeting where the relationship was discussed have been signed by the parties. Each company owns 50% of the equity shares and provides equal numbers of directors to the management board. There is an understanding that the shares in the joi nt venture cannot be sold unless first offered to the other shareholder. Required Discuss whether it is possible for joint control to exist if there is no written contract. Solution Joint control will exist in this case because the substance of the arrangement is that of joint control, and the Standard says that the existence of a contractual arrangement can be shown in a number of ways, one of which is minutes of discussions between the venturers. The existence of a contractual obligation es– tablishes joint control over the venture so that no single venturer can be in a position to control the ven– ture. Each company owns 50% of the equity and provides equal numbers to the board. Also, the shares should be offered to the other shareholder first before selling. 11. DISCLOSURE A ven turer has to disclose specific information about contingent liabilities relating to its interest in the j oint venture and also this information: • Capital commitments relating to its intere sts in joint ventures. • A list and description s of interests in signific ant joint ventures and the proportion of the ownership interest that is held in jointly co ntro lled en tities. If the line-b y-line format is used for proportionate consol idation or if the equity method is used , then the venturer should dis– close the aggregate amount of curre nt ass ets, long-term assets. current liab ilities, and income and expenses relating to its interests in j oint ventures . • The method that is used to recogn ize the interests in jointly contro lled entities. Practical Insight Holcim S.A., a Swiss entity, uses proport ion ate co nsoli da tion to account for an investment in a joint venture . The entity chooses to conso lida te its share of the assets, liabilities, income , and expe nses on a line-by-line basis rather than showi ng them as separate line items . Th is seems to be the practice of many companies using IFRS. SIC 13, Jointly Controlled Entities-Nonmone tary Contributio ns by Venturers, clarifies the circumstances in wh ich the appro pria te port ion of gains or losses res ulting from a contribution of a nonmonetary asset to a j ointl y co ntrolled entity (leE) in exchange for an equity interest in the ICE should be recognize d by the venturer in the income statement.