How Joint Arrangements and Joint Ventures Are Accounted for under IFRS 11 and ASC 323

Joint arrangements arise when two or more parties share control over an economic activity through contractual agreement. They can involve shared ownership of assets, joint operations, or jointly controlled entities. Under IFRS (IFRS 11 – Joint Arrangements, IAS 28 – Investments in Associates and Joint Ventures) and US GAAP (ASC 323 – Investments – Equity Method and Joint Ventures), the accounting outcome depends on the type of arrangement—joint operation or joint venture—and the rights and obligations conferred by the contract. Both frameworks emphasize substance over legal form, focusing on whether the investors control specific assets and liabilities or have a residual net interest.

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How joint arrangements arise.

Joint arrangements are common in extractive industries, infrastructure projects, real estate, R&D partnerships, and technology collaborations. Two or more parties contribute resources, share decision-making, and expect returns aligned with their interests. The contractual agreement must give joint control, meaning that strategic and operating decisions require the unanimous consent of the parties sharing control.

Key structural forms include:

• Joint operations — participants have direct rights to assets and obligations for liabilities.

• Joint ventures — participants have rights to the net assets of the arrangement, typically through a separate legal entity.

The distinction determines whether the parties recognize proportionate assets/liabilities or a single investment account under the equity method.

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Recognition and measurement under IFRS 11 and IAS 28.

1) Determining the type of arrangement.

The investor assesses:

• The structure (separate vehicle or not),

• The legal form of that vehicle,

• The terms of the contractual arrangement, and

• Other facts and circumstances indicating how the arrangement operates in practice.

Joint operation → recognize share of assets, liabilities, revenues, and expenses.Joint venture → recognize a single investment accounted for using the equity method under IAS 28.

2) Accounting for joint operations.

Each joint operator recognizes its proportionate interest in the underlying items:

Example (IFRS — 50% joint operation):

• Debit: Property, Plant and Equipment 2,000,000

• Debit: Inventory 150,000

• Credit: Cash 2,150,000

Revenues and expenses are recognized in the same proportion:

• Debit: Accounts Receivable 500,000

• Credit: Revenue 500,000

• Debit: Cost of Sales 250,000

• Credit: Inventory/Payables 250,000

No investment account is recorded; instead, the operator’s share of each line item integrates directly into its financial statements.

3) Accounting for joint ventures (equity method under IAS 28).

Joint ventures are treated like associates:

• Initial recognition at cost.

• Subsequently adjusted for the investor’s share of profit or loss, OCI, and dividends received.

• Tested for impairment under IAS 36 if indications exist.

Journal entries (IFRS — equity method): Initial recognition

• Debit: Investment in Joint Venture 3,000,000

• Credit: Cash 3,000,000

Share of profit

• Debit: Investment in Joint Venture 150,000

• Credit: Share of Profit from Joint Venture 150,000

Dividend received

• Debit: Cash 50,000

• Credit: Investment in Joint Venture 50,000

4) Elimination of upstream and downstream transactions.

Unrealized profits on transactions between the investor and the joint venture are eliminated to the extent of the investor’s interest.Example: sale of goods to JV at profit of 40,000; investor holds 50% → eliminate 20,000.

5) Impairment.If recoverable amount < carrying amount, recognize impairment under IAS 36, allocating loss to the investment account.

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Recognition and measurement under US GAAP (ASC 323).

1) Definition and scope.

ASC 323 applies to corporate joint ventures—limited-life entities owned and operated by a small group of investors under shared control—and to investments with significant influence (20–50% voting interest, unless rebutted).

2) Equity method mechanics.

• Record the investment at cost.

• Increase for investor’s share of earnings.

• Decrease for dividends received or investor’s share of losses.

• Adjust for basis differences between cost and underlying net assets (similar to purchase accounting amortization).

Journal entries (US GAAP — equity method): Initial recognition

• Debit: Investment in Joint Venture 3,000,000

• Credit: Cash 3,000,000

Share of earnings (40% interest, JV profit 400,000)

• Debit: Investment in Joint Venture 160,000

• Credit: Equity in Earnings of JV 160,000

Dividend received (40% share = 60,000)

• Debit: Cash 60,000

• Credit: Investment in Joint Venture 60,000

3) Upstream and downstream eliminations. Eliminate investor’s proportionate share of unrealized intercompany profit (same as IFRS).Example: investor sells goods to JV; unrealized profit portion = 10,000 → reduce investment and earnings by 10,000.

4) Impairment. Apply ASC 323-10-35: recognize impairment when the decline in value is other-than-temporary, measured as the difference between carrying amount and fair value. No reversal is permitted.

5) Option for fair value (ASC 825). Certain investors may elect to carry joint venture investments at fair value through earnings for venture-capital or investment-company contexts.

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Comparative table: IFRS vs US GAAP.

Aspect	IFRS (IFRS 11 / IAS 28)	US GAAP (ASC 323)
Types of arrangements	Joint operations and joint ventures	Joint ventures (corporate form); joint operations addressed through proportionate consolidation by analogy
Recognition model	Joint operations: share of assets/liabilities; Joint ventures: equity method	Equity method for joint ventures and significant influence investments
Initial measurement	Cost	Cost
Subsequent measurement	Adjust for share of P&L, OCI, and dividends	Adjust for share of earnings and dividends; include basis difference amortization
Impairment	IAS 36 recoverable amount test; reversals allowed for non-goodwill	Other-than-temporary impairment; no reversal
Elimination of intercompany profits	Required to extent of investor’s interest	Required to extent of investor’s interest
Fair value option	Not generally permitted (except venture-capital funds under IAS 28.18)	Permitted under ASC 825 (elective)
Disclosure emphasis	Nature, structure, financial information of material JVs	Nature, carrying amount, summarized JV financial info, basis differences

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Presentation and disclosures.

IFRS:Joint operations — include the operator’s share of assets, liabilities, revenues, and expenses in the respective line items.Joint ventures — present the investment as a non-current asset. Disclose:

• Nature and ownership interest of significant joint arrangements.

• Method of accounting applied.

• Summarized financial information of each material JV (assets, liabilities, revenue, profit).

• Contingent liabilities and commitments.

US GAAP:Disclose the carrying amount of investments, the investor’s share of income, and summarized financial data for material JVs. SEC filers include basis difference reconciliations if material.

Example presentation (IFRS — joint venture):

Non-Current Assets	Amount (USD)
Investment in Joint Venture	3,210,000
Property, Plant and Equipment	18,700,000
Intangibles	2,600,000

Income statement extract:

Account	Amount (USD)
Share of Profit from Joint Venture	150,000
Other Income	320,000

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Journal entries for common scenarios.

1) Initial recognition (both frameworks):

• Debit: Investment in Joint Venture xxx

• Credit: Cash xxx

2) Recognizing share of profit:

• Debit: Investment in JV xxx

• Credit: Share of Profit of JV xxx

3) Recognizing dividends received:

• Debit: Cash xxx

• Credit: Investment in JV xxx

4) Eliminating unrealized intercompany profit (upstream transaction):

• Debit: Equity in Earnings of JV xxx

• Credit: Investment in JV xxx

5) Impairment (IFRS):

• Debit: Impairment Loss xxx

• Credit: Investment in JV xxx

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Impact on financial performance and ratios.

Under IFRS, joint operations inflate gross assets, liabilities, and revenues, whereas joint ventures only affect the net investment line. Under GAAP, all joint ventures use the equity method, producing leaner balance sheets but lower turnover ratios (due to reduced denominator).

Key ratios affected include:

• Debt-to-equity: higher under joint operation accounting.

• ROA: lower when assets are consolidated proportionately.

• EBITDA margin: unaffected by equity-method investments, as share of profit is below operating profit.

Analysts often adjust equity-accounted earnings to approximate proportional consolidation for comparability across peers.

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Operational considerations.

Entities must define joint control clearly in contracts, specifying decision-making rights, capital commitments, and exit provisions. Finance teams should:

• Maintain separate reporting packages for each JV.

• Reconcile JV financials to parent books.

• Document basis differences and purchase price allocations.

• Test for impairment and monitor performance vs forecasts.

Governance of joint arrangements should align accounting outcomes with real economic control, ensuring transparency across partners and regulators.

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