Deck 30: Joint Arrangements

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.

Answer 1

Substance and nature of an entity's rights

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.

Answer 2

Joint ventures

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.

Answer 3

AAE should recognize the increased value on property contributed by CCE only.

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.

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.

Question 6

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

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.

Question 8

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

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.

Question 10

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

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).

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.

Question 13

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

Question 14

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

Question 15

The concept of joint operations is a component of 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.

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.