OT02121 | Oil Industry accounting: joint venture accounting - IFRS - summary of the nature of relationships and accounting treatment

Arrangement: Joint operation

Nature of relationship

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators (IFRS 11.15).

Treatment in investor’s individual accounts

A joint operator shall recognise in relation to its interest in a joint operation:

• its assets, including its share of any assets held jointly;

• its liabilities, including its share of any liabilities incurred jointly;

• its revenue from the sale of its share of the output arising from the joint operation;

• its share of the revenue from the sale of the output by the joint operation; and

• its expenses, including its share of any expenses incurred jointly.

It shall also account for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses.

Investors with less than joint control

A party that participates in, but does not have joint control of, a joint operation shall also account for its interest in the arrangement in accordance with paragraphs 20 - 22 of IFRS 11 (as summarised above) if that party has rights to the assets, and obligations for the liabilities, relating to the joint operation.

If a party that participates in, but does not have joint control of, a joint operation does not have rights to the assets, and obligations for the liabilities, relating to that joint operation, it shall account for its interest in the joint operation in accordance with IFRSs applicable to that interest.

Acquisition of an interest in a joint operation

When an entity acquires an interest in a joint operation in which the activity of the joint operation consists of a business, as defined by IFRS 3 Business Combinations, it shall apply, to the extent of its share, in accordance with paragraph 20 of IFRS 11, all of the principles of business combination accounting in IFRS 3.

Arrangement: Joint Venture

Nature of relationship

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers (IFRS 11.16).

Treatment in investor’s individual accounts

A joint venturer shall recognise its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with IAS 28 Investments in associates and joint ventures unless the entity is exempted from applying the equity method as specified in that standard.

If investor does not have control

A party that participates in, but does not have joint control of, a joint venture shall account for its interest in the arrangement in accordance with IFRS 9 Financial Instruments, unless it has significant influence over the joint venture, in which case it shall account for it in accordance with IAS 28 Investments in associates and joint ventures.