Exam 30: Joint Arrangements

Which of the following is not a joint arrangement?

Which of the following would be properly accounted for using the equity method?

Two firms invest capital into a third entity with each firm holding a fifty percent share of the net assets; therefore control of the entity is split evenly. This is a joint venture. (False - a contractual agreement is required).

Joint ventures and joint operations are two terms for essentially the same thing.

Which of the following is not usually covered in a contractual arrangement establishing a joint arrangement.

Which of the following is the chief determinant of accounting treatment for a joint arrangement?

All joint activities facilitated by a separate vehicle are joint ventures.

Alan Astrophysics Entity (AAE) is involved in a joint operation with Clark Chemical Entity (CCE) in developing a new research facility to be deployed in space. The values of the assets contributed by both parties increase at the time of contribution. How should the change in value be accounted for on AAE's books?

Joint ventures are joint arrangements whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities relating to the arrangement.

An entity determines the type of joint arrangement by examining the structure, legal form, contractual agreement, and other facts and circumstances. (True)

Three firms invest capital into a third entity with each firm holding an equal share of the net assets. An agreement between the two firms stipulates that certain decision areas that require consent by all parties; however, some areas will only require two of the firms to agree. This is a joint venture.

Joint ventures can include only those investments that are in unconsolidated structured entities.

The key element of a joint arrangement is a contractual agreement establishing joint control of an economic activity.

Describe the benchmark treatment for a joint arrangement under IAS 31. Describe how IFRS 11 supersedes this standard and aims to fulfill the purposes of general purpose financial statements as outlined in the Conceptual Framework.

The concept of joint operations is a component of a converged standard with US GAAP.

Due to the instability of many foreign governments, IFRS 11 disallows joint arrangements with governments; entities are instead directed to reference IFRS 12 on unconsolidated structured entities.

Describe the differences in accounting between joint operations and joint ventures using separate vehicles. Explain what these differences do to ensure entities faithfully represent the economic realities of their operations as described in the Conceptual Framework.