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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.