Question 1

Which of the following is the chief determinant of accounting treatment for a joint arrangement?
A) Contract between two entities.
B) Legal form of the joint arrangement
C) Substance and nature of an entity's rights
D) All of the above.

Accepted Answer

The chief determinant of accounting treatment for a joint arrangement is the substance and nature of an entity's rights and obligations within the arrangement, rather than just the legal form or contract.

Question 2

Which of the following would be properly accounted for using the equity method?
A) Joint operations
B) Joint ventures
C) All joint arrangements.
D) No joint arrangements.

Accepted Answer

The equity method is used for accounting in joint ventures where an entity has significant influence, but not control, over the investee, typically reflected by ownership of 20% to 50% of the voting stock.

Question 3

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?
A) AAE should recognize the increased value on property contributed by both CCE and AAE.
B) AAE should recognize the increased value on property contributed by CCE only.
C) AAE should recognize the increased value on property contributed by AAE only.
D) Because this is a joint operation, no increase in value should be recognized.

Accepted Answer

B

Question 4

Which of the following is not usually covered in a contractual arrangement establishing a joint arrangement.
A) Purpose, activity and duration of the arrangement
B) How management is appointed and compensated
C) Decision-making process that establishes joint control of the arrangement
D) How the parties share assets, liabilities, revenues expenses or profit or loss of the arrangement.

Accepted Answer

Management appointment and compensation details are typically not covered in contracts establishing joint arrangements. These contracts usually focus on the purpose, activity, duration, decision-making processes, and sharing of financial outcomes rather than specifics on management roles and compensation.

Question 5

Which of the following is not a joint arrangement?
A) An entity is formed with a contract by ten owners. Each of the ten owners have an equal proportion of ownership. Any combination of owners constituting a majority can make decisions.
B) An entity has ten owners including Entities A, B, and C. This entity is formed by contract between all of the investors. Each of the ten owners have an equal proportion of ownership. Any combination of owners constituting a majority can make decisions; however, this majority must include entities A & B, according to the written agreement.
C) An entity is formed by ten owners by contractual arrangement, including entities D, E, and F. Entities D and E together own 60% of the shares.
D) All of the above are considered joint arrangements as described by IFRS 11.

Accepted Answer

The answer of Which of the following is not a...

Question 6

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

Accepted Answer

A joint arrangement requires a contractual agreement that gives two or more parties joint control over the economic activity conducted through the arrangement, which is a fundamental aspect of such arrangements as defined in accounting standards like IFRS 11.

Question 7

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.

Accepted Answer

IFRS 11 does not specifically disallow joint arrangements with governments due to the instability of foreign governments. It provides guidance on the accounting for joint arrangements without making distinctions based on the nature of the other parties involved, including governments.

Question 8

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

Accepted Answer

Joint ventures and joint operations are different in structure and management. A joint venture is a business entity created by two or more parties, sharing ownership, returns, and risks. A joint operation, however, involves the parties working together on a project without creating a new entity, sharing costs, and responsibilities directly.

Question 9

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.

Accepted Answer

Joint ventures involve parties having rights to the net assets of the arrangement, not direct rights to the assets and obligations for the liabilities.

Question 10

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

Accepted Answer

The determination of the type of joint arrangement (joint operation or joint venture) is based on an assessment of the structure, legal form, contractual agreement, and other facts and circumstances surrounding the arrangement, as per accounting standards.

Question 11

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).

Accepted Answer

The answer of Two firms invest capital into a third...

Question 12

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.

Accepted Answer

This scenario describes a joint venture, where multiple parties (in this case, three firms) come together to undertake a business enterprise, sharing in the profits, losses, and control. The agreement on decision-making processes, including areas requiring unanimous consent and those needing only a majority, is characteristic of joint venture agreements.

Question 13

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

Accepted Answer

Joint ventures can include investments in both consolidated and unconsolidated structured entities.

Question 14

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

Accepted Answer

Joint activities facilitated by a separate vehicle can be part of a joint venture, but not all such activities qualify as joint ventures. A joint venture specifically involves two or more parties pooling resources to achieve a particular business objective, and while it often involves a separate vehicle (like a partnership or corporation), the defining characteristic is the shared control and risks, not just the use of a separate vehicle.

Question 15

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

Accepted Answer

The concept of joint operations is a component of the International Financial Reporting Standards (IFRS), specifically IFRS 11, and not a converged standard with US GAAP.

Question 16

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.

Accepted Answer

The answer of Describe the benchmark treatment for a joint...

Question 17

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.

Accepted Answer

The answer of Describe the differences in accounting between joint...

Quiz 30: Joint Arrangements

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

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

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

Which of the following is not a joint arrangement?