TaxTMI 
TaxTMI 
Joint Arrangements
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....oint control. 5 A joint arrangement has the following characteristics: (a) The parties are bound by a contractual arrangement (see paragraphs B2- B4). (b) The contractual arrangement gives two or more of those parties joint control of the arrangement (see paragraphs 7-13). 6 A joint arrangement is either a joint operation or a joint venture. Joint control 7 Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. 8 An entity that is a party to an arrangement shall assess whether the contractual arrangement gives all the parties, or a group of the parties, control of the arrangement collectively. All the parties, or a group of the parties, control the arrangement collectively when they must act together to direct the activities that significantly affect the returns of the arrangement (ie the relevant activities). 9 Once it has been determined that all the parties, or a group of the parties, control the arrangement collectively, joint control exists only when decisions about the relevant activitie....
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....e activities. The framework agreement might set out that the parties establish different joint arrangements to deal with specific activities that form part of the agreement. Even though those joint arrangements are related to the same framework agreement, their type might be different if the parties' rights and obligations differ when undertaking the different activities dealt with in the framework agreement. Consequently, joint operations and joint ventures can coexist when the parties undertake different activities that form part of the same framework agreement. 19 If facts and circumstances change, an entity shall reassess whether the type of joint arrangement in which it is involved has changed. Financial statements of parties to a joint arrangement Joint operations 20 A joint operator shall recognise in relation to its interest in a joint operation: (a) its assets, including its share of any assets held jointly; (b) its liabilities, including its share of any liabilities incurred jointly; (c) its revenue from the sale of its share of the output arising from the joint operation; (d) its share of the revenue from the sale of the ou....
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....t for its interest in the arrangement in accordance with Ind AS 109, Financial Instruments, unless it has significant influence over the joint venture, in which case it shall account for it in accordance with Ind AS 28. Separate financial statements 26 In its separate financial statements, a joint operator or joint venturer shall account for its interest in: a) a joint operation in accordance with paragraphs 20-22; (b) a joint venture in accordance with paragraph 10 of Ind AS 27, Separate Financial Statements. 27 In its separate financial statements, a party that participates in, but does not have joint control of, a joint arrangement shall account for its interest in: (a) a joint operation in accordance with paragraph 23; (b) a joint venture in accordance with Ind AS 109, unless the entity has significant influence over the joint venture, in which case it shall apply paragraph 10 of Ind AS 27. Appendix A Defined terms This appendix is an integral part of the Ind AS. joint arrangement An arrangement of which two or more parties have joint control. joint control The contractually agreed sharing of control of an arrang....
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.... through a separate vehicle (see paragraphs B19- B33), the contractual arrangement, or some aspects of the contractual arrangement, will in some cases be incorporated in the articles, charter or by-laws of the separate vehicle. B4 The contractual arrangement sets out the terms upon which the parties participate in the activity that is the subject of the arrangement. The contractual arrangement generally deals with such matters as: (a) the purpose, activity and duration of the joint arrangement. (b) how the members of the board of directors, or equivalent governing body, of the joint arrangement, are appointed. (c) the decision-making process: the matters requiring decisions from the parties, the voting rights of the parties and the required level of support for those matters. The decision-making process reflected in the contractual arrangement establishes joint control of the arrangement (see paragraphs B5-B11). (d) the capital or other contributions required of the parties. (e) how the parties share assets, liabilities, revenues, expenses or profit or loss relating to the joint arrangement. Joint Control (paragraphs 7-13) B5 In....
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.... Assume that three parties establish an arrangement: A has 50 per cent of the voting rights in the arrangement, B has 30 per cent and C has 20 per cent. The contractual arrangement between A, B and C specifies that at least 75 per cent of the voting rights are required to make decisions about the relevant activities of the arrangement. Even though A can block any decision, it does not control the arrangement because it needs the agreement of B. The terms of their contractual arrangement requiring at least 75 per cent of the voting rights to make decisions about the relevant activities imply that A and B have joint control of the arrangement because decisions about the relevant activities of the arrangement cannot be made without both A and B agreeing. Example 2 Assume an arrangement has three parties: A has 50 per cent of the voting rights in the arrangement and B and C each have 25 per cent. The contractual arrangement between A, B and C specifies that at least 75 per cent of the voting rights are required to make decisions about the relevant activities of the arrangement. Even though A can block any decision, it does not control the arrangement because it needs the agreem....
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....the arrangement to be undertaken in a separate vehicle. However, other arrangements involve the establishment of a separate vehicle. B14 The classification of joint arrangements required by this Ind AS depends upon the parties' rights and obligations arising from the arrangement in the normal course of business. This Ind AS classifies joint arrangements as either joint operations or joint ventures. When an entity has rights to the assets, and obligations for the liabilities, relating to the arrangement, the arrangement is a joint operation. When an entity has rights to the net assets of the arrangement, the arrangement is a joint venture. Paragraphs B16-B33 set out the assessment an entity carries out to determine whether it has an interest in a joint operation or an interest in a joint venture. Classification of a joint arrangement B15 As stated in paragraph B14, the classification of joint arrangements requires the parties to assess their rights and obligations arising from the arrangement. When making that assessment, an entity shall consider the following: (a) the structure of the joint arrangement (see paragraphs B16-B21). (b) when the joint arrangem....
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.... assets, and obligations for the liabilities, relating to the arrangement that are held in the separate vehicle. B21 As stated in paragraph B15, when the parties have structured a joint arrangement in a separate vehicle, the parties need to assess whether the legal form of the separate vehicle, the terms of the contractual arrangement and, when relevant, any other facts and circumstances give them: (a) rights to the assets, and obligations for the liabilities, relating to the arrangement (ie the arrangement is a joint operation); or (b) rights to the net assets of the arrangement (ie the arrangement is a joint venture). The legal form of the separate vehicle B22 The legal form of the separate vehicle is relevant when assessing the type of joint arrangement. The legal form assists in the initial assessment of the parties' rights to the assets and obligations for the liabilities held in the separate vehicle, such as whether the parties have interests in the assets held in the separate vehicle and whether they are liable for the liabilities held in the separate vehicle. B23 For example, the parties might conduct the joint arrangement through a separate ve....
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....ration through their contractual arrangement so that each has an interest in the assets of the incorporated entity and each is liable for the liabilities of the incorporated entity in a specified proportion. Such contractual modifications to the features of a corporation can cause an arrangement to be a joint operation. B27 The following table compares common terms in contractual arrangements of parties to a joint operation and common terms in contractual arrangements of parties to a joint venture. The examples of the contractual terms provided in the following table are not exhaustive. Assessing the terms of the contractual arrangement Joint operation Joint venture The terms of the contractual arrangement The contractual arrangement provides the parties to the joint arrangement with rights to the assets, and obligations for the liabilities, relating to the arrangement. The contractual arrangement provides the parties to the joint arrangement with rights to the net assets of the arrangement (ie it is the separate vehicle, not the parties, that has rights to the assets, and obligations for the liabilities, relating to the arrangement). Rights to ....
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....rship interest in the arrangement. This would not prevent the arrangement from being a joint operation if the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement. The contractual arrangement establishes each party's share in the profit or loss relating to the activities of the arrangement. Guarantees The parties to joint arrangements are often required to provide guarantees to third parties that, for example, receive a service from, or provide financing to, the joint arrangement. The provision of such guarantees, or the commitment by the parties to provide them, does not, by itself, determine that the joint arrangement is a joint operation. The feature that determines whether the joint arrangement is a joint operation or a joint venture is whether the parties have obligations for the liabilities relating to the arrangement (for some of which the parties might or might not have provided a guarantee). B28 When the contractual arrangement specifies that the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement, they are parties to a joint operation and do not need to consider....
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....n incorporated entity) through which the activities are conducted initially indicates that the assets and liabilities held in entity C are the assets and liabilities of entity C. The contractual arrangement between the parties does not specify that the parties have rights to the assets or obligations for the liabilities of entity C. Accordingly, the legal form of entity C and the terms of the contractual arrangement indicate that the arrangement is a joint venture. However, the parties also consider the following aspects of the arrangement: • The parties agreed to purchase all the output produced by entity C in a ratio of 50:50. Entity C cannot sell any of the output to third parties, unless this is approved by the two parties to the arrangement. Because the purpose of the arrangement is to provide the parties with output they require, such sales to third parties are expected to be uncommon and not material. • The price of the output sold to the parties is set by both parties at a level that is designed to cover the costs of production and administrative expenses incurred by entity C. On the basis of this operating model, the arrangement is intended ....
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....alue, other than items for which exceptions are given in Ind AS 103 and other Ind ASs; (b) recognising acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with the exception that the costs to issue debt or equity securities are recognised in accordance with Ind AS 32 Financial Instruments: Presentation and Ind AS109; (c) recognising deferred tax assets and deferred tax liabilities that arise from the initial recognition of assets or liabilities, except for deferred tax liabilities that arise from the initial recognition of goodwill, as required by Ind AS 103 and Ind AS 12 Income Taxes for business combinations; (d) recognising the excess of the consideration transferred over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, if any, as goodwill; and (e) testing for impairment a cash-generating unit to which goodwill has been allocated at least annually, and whenever there is an indication that the unit may be impaired, as required by Ind AS 36 Impairment of Assets for goodwill acquired in a business combination. B33B Paragraphs....
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....hases of assets from a joint operation B36 When an entity enters into a transaction with a joint operation in which it is a joint operator, such as a purchase of assets, it shall not recognise its share of the gains and losses until it resells those assets to a third party. B37 When such transactions provide evidence of a reduction in the net realisable value of the assets to be purchased or of an impairment loss of those assets, a joint operator shall recognise its share of those losses. ^2[Appendix C This Appendix is an integral part of the Ind AS and has the same authority as the other parts of the Ind AS. Effective date C1 * C1A * C1AA * ^ (*Refer Appendix 1) C1AB Annual Improvements to Ind AS (2018) added paragraph B33CA. An entity shall apply those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after 1 April, 2019.] Appendix 1 Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian A....
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....ternational Financial Reporting Standards. (iii) The paragraph which relate to withdrawal of other IFRSs is not relevant." 4. Substituted vide NOTIFICATION NO. G.S.R. 419(E) dated 18-06-2021 before it was read as "as defined in Ind AS 103," - ============= Document 1 Assessing joint control Does the contractual arrangement give all the parties, or a group of the parties, control of the arrangements collectively? Yes Do decisions about the relevant activities require the unanimous consent of all the parties, or of a group of the parties, that collectively control the arrangement? Yes The arrangement is jointly controlled: the arrangement is a joint arrangement. No No Outside the scope of Ind AS 111 Outside the scope of Ind AS 111 Document 2 Classification of a joint arrangement: assessment of the parties' rights and obligations arising from the arrangement Structure of the Joint arrangement Not structured through a separate vehicle Joint operation Structured through a separate vehicle (i) (ii) An entity shall consider: The legal form of the separate vehicle....