Exam 9: Accounting for Associates and Joint Ventures: the Equity Method

Discuss the control test for asset recognition in relation to the line by line method of accounting for interests in jointly controlled operations and jointly controlled assets.

A venture must recognise its interest in a jointly controlled entity using:

An investor in a joint venture is required to account for the investment in accordance with AASB131

The line by line method of accounting hides the existence of interests in jointly controlled operations and jointly controlled assets.

The concept of joint control:

A jointly controlled entity can be:

A 40% venturer in a jointly controlled operation sells an asset to the joint venture.The asset has a fair value of $5,000,000.The carrying amount in the books of the venture was $4,000,000.The profit to be recognised by the venturer is:

Alternative reporting formats are allowed under AASB131 for jointly controlled entities

Unrealised profits or losses on the transfer of assets to a jointly controlled operation are always offset against the joint venture investment account.

Supplementary disclosure requirements for joint ventures in the financial statements of venturers include:

The essential element which would distinguish the business undertaking BKT Enterprises as a partnership and not a joint venture operation would be:

In July 20X6,Midstream Ltd entered into a joint venture operation with Delta Ltd to explore for minerals in the area of interest KP97.Midstream Ltd contributed $5,000,000 in cash and Delta Ltd contributed specialised drilling equipment with an agreed fair value of $5,000,000.The venturers shared control of the operation.All the assets of the operation were held by the venturers as tenants in common.The estimated useful life of the plant was 5 years.In the accounts of Delta Ltd,this equipment was carried at cost $6,000,000 less accumulated depreciation $3,000,000.For the year ended June 30 20X7,the following financial statements were prepared by the joint venture manager (amounts in thousands): Balance Sheet as at June 30 20X7 Performance Statement for the Year ended June 30 20X7 At June 30 20X7,the exploration had not yet advanced to the stage where a reliable estimate could be made of the recoverable mineral reserves in KP97. The journal entry to record the initial investment of Midstream Ltd would be:

Midstream Ltd and Delta Ltd enter into a business undertaking to lease a 100-hectare vineyard from Pinot Ltd.There is a contractual agreement between the two companies whereby they share control and must agree on all strategic financial and operating decisions.The two companies appoint Todman Management Pty Ltd as the vineyard manager.A separate set of accounting database is established for the undertaking and each investor contributes cash capital to the undertaking and hold the assets as tenants in common.The intention of the investing companies is to take their proportionate share of the produce of the vineyard to use in their own wineries.The business undertaking is:

In a venture in which there are jointly controlled assets,the venturers share the assets as tenants in common; which means that:

Discuss the issue of entitlement of venturers to share in profits of a jointly controlled entity.

The one line method of accounting for joint ventures is the same as the equity method of accounting for investments in associates

Accounting Standard AASB131 Interests in Joint Ventures does not apply to investments in joint ventures: