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Interpretation and Application of International Standards on Auditing by Steven Collings

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IAS 31 ‘INTERESTS IN JOINT VENTURES’

This standard deals with those entities that have interests in joint ventures and prescribes the accounting for such interests.

JOINT VENTURE

A joint venture is a contractual arrangement where two or more parties are involved in an undertaking that is subject to joint control. Joint control is contractually agreed and involves the sharing of control over an entity. A joint venture can only be classified as such if the financial and operating decisions relating to the activity require the unanimous consent of the parties sharing the control.

There are three types of joint venture that are dealt with in the provisions of IAS 31:

  • Jointly-controlled operations.
  • Jointly-controlled assets.
  • Jointly-controlled entities.

Jointly-controlled Operations

In these joint ventures, each venture uses its own property, plant and equipment and carries its own inventories. It incurs its own expenses and liabilities and raises its own finance. The financial statements of a venture will include:

  • The assets that it controls and the liabilities that it incurs.
  • The expenses that it incurs and its share of the income that it earns from the sale of goods or rendering of services by the joint venture.

Jointly-controlled Assets

In respect of jointly-controlled assets, a venture must recognise in its financial statements:

  • Its share of the jointly-controlled assets, classified according to the nature of the assets.
  • Any liabilities that it has incurred.
  • Its share of ...

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