Initial recognition and subsequent adjustments

Chapter 35 – Joint Ventures Page 457 held prior to the significant influence being lost and the fair value of any retained investment plus any proceeds received. [IAS 31.45, 31.45A] Illustration 5 AB controls a number of subsidiaries and therefore prepares consolidated financial statements. AB is also a venturer in JV, a jointly controlled entity in which AB owns 25. AB acquired its share of JV at a cost of CU1m on the creation of JV. At that time JV had net assets of CU4m. Hence, there was no goodwill to be recognised. A summarised draft statement of financial position of the AB Group AB and its subsidiaries, but not its interest in JV, and JV is as follows: AB JV group CUm CUm Non-current assets Property, plant and equipment 60 20 Intangibles 30 8 Investment in JV 1 - Current assets Inventories 50 16 Other 80 24 Current liabilities 90 36 131 32 CUm The equity in AB group plus JV can be calculated as: AB group 131 JV post-acquisition 32 – 4 x 25 7 138 The three layouts for the AB group consolidated statement of financial position including JV are as follows: 1 Proportionate consolidation: line by line CUm Non-current assets Property, plant and equipment 60+ 25 x 20 65 Intangibles 30 + 25 x 8 32 Current assets Inventories 50 + 25 x16 54 Other 80 + 25 x 24 86 Current liabilities 90 + 25 x 36 99 Equity – as above 138 2 Proportionate consolidation: share shown separately CUm CUm Non-current assets Property, plant and equipment own 60 JV 5 65 Chapter 35 – Joint Ventures Page 458 Intangibles own 30 JV 2 32 Current assets Inventories own 50 JV 4 54 Other own 80 JV 6 86 Current liabilities own 90 JV 9 99 Equity – as above 138 3 Equity method of accounting CUm Non-current assets Property, plant and equipment own 60 Intangibles own 30 Investment in JV cost CU1m + share of 8 post-acquisition increase in net assets per calculation of equity CU7m Current assets Inventories own 50 Other own 80 Current liabilities own 90 Equity – as above 138 Note how the recognition using different methods has a significant effect on the presentation of the financial position of AB. 5 Other Points in IAS 31

5.1 Investors separate financial statements

An interest in a jointly controlled entity should be accounted for in the individual financial statements of the venturer by applying the requirements of IAS 27 for separate financial statements. [IAS 31.46]

5.2 Transactions between a venturer and a joint venture

Where the venturer sells or contributes assets to a joint venture or purchases assets from a joint venture, an adjustment should be made for the amount of any profit generated that reflects a transaction internal to the entity. For example, if a venturer sells an asset to the joint venture for a profit and the asset continues to be held by the joint venture, the proportion of that asset that is consolidated includes an element of profit that was recorded by the venturer. In such circumstances only the profit that relates to the share of the asset that belongs to the other venturers should be retained. [IAS 31.48] A similar approach should be adopted for the purchase of assets from the joint venture; its