OT02116 | Oil Industry accounting: joint venture accounting - FRS 102 - summary of the nature of relationships and accounting treatment

Arrangement: Jointly controlled operations

Nature of relationship

A jointly controlled operation involves the use of the assets and other resources of the venturers rather than the establishment of a corporation, partnership or other entity, or financial structure that is separate from the venturers themselves. Each venturer uses its own property, plant and equipment and carries its own inventories. It incurs its own expenses and liabilities and raises its own finance, which represents its obligations.

Treatment in investor’s individual accounts

In respect of interests in jointly controlled operations, a venturer shall recognise in its financial statements:

• the assets that it controls and the liabilities that it incurs; and

• the expenses that it incurs and a share of the income that it earns from the sale of goods and services by the joint venture.

Arrangement: Jointly controlled assets

Nature of relationship

Jointly controlled assets involves the joint control, and often the joint ownership, by the venturers of one or more assets contributed to, or acquired for the purpose of, the joint venture and dedicated to the purposes of the joint venture.

Treatment in investor’s individual accounts

In respect of its interest in a jointly controlled asset, a venturer shall recognise in its financial statements:

• its share of the the jointly controlled asset, classified according to the nature of the assets;

• any liabilities that it has incurred;

• its share of any liabilities incurred jointly with the other venturers in relation to the joint venture;

• any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and

• any expenses it has incurred in respect of its interest in the joint venture.

Arrangement: Jointly controlled entities

Nature of relationship

A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. The entity operates in the same way as other entities, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.

Treatment in investor’s individual accounts

A venturer that is not a parent but has one or more interests in jointly controlled entities shall, in its individual financial statements, account for all of its interests in jointly controlled entities using either:

• The cost model in accordance with paragraphs 15.10 to 15.11 of FRS 102;

• The fair value model in accordance with paragraphs 15.14 to 15.15A of FRS 102; or

• At fair value with changes in fair value recognised in profit or loss.

If investor does not have joint control

An investor in a joint venture that does not have joint control shall account for that investment in accordance with Section 11 Basic Financial Instruments or Section 12 Other Financial Instruments Issues of FRS 102 or, if it has significant influence in the joint venture, in accordance with Section 14 Investments in Associates of FRS 102.