ACCOUNTING FOR CHAPTER 11

GOVERNMENT &
NON-PROFIT
INTERESTS IN JOINT VENTURES
ORGANIZATIONS MODULE CONTENTS

This covers the accounting for interests in joint ventures and the reporting of joint
venture assets, liabilities, revenue and expenses in the financial statements of venturers
and investors, regardless of the structures or forms under which the joint venture
activities take place.

Specifically, this will discuss the following:

 RECOGITION – how are interests in joint ventures recognized?
 MEASUREMENT – how are interests in joint ventures measured initially and
subsequently?
 PRESENTATION – how are interests in joint ventures presented in the statement
of financial position?
 DISCLOSURE – how are interests in joint ventures disclosed in the notes to the
financial statements?

RECOGNITION
Joint Venture is a binding arrangement whereby two or more parties [venturers] are
committed to undertake an activity that is subject to joint control.

 Joint control – is the agreed sharing of control over an activity by a binding

arrangement. (IPSAS 8.6)

 Venturer – is a party to a joint venture and has joint control over that joint
venture. (Par. 6, IPSAS 8)

Forms and Structures of Joint Ventures under IPSAS 8

The following are the three forms of joint ventures:
 Jointly Controlled Operations
In a jointly controlled operation, a venturer uses its own assets in the joint
venture and, because it controls those assets, continues to recognize them in its
financial statements. The venturer also recognizes the liabilities and expenses
that it

 Jointly Controlled Assets

In respect of an interest in jointly controlled assets, a venturer recognizes in its
financial statements its share of the jointly controlled assets, classified according
to the nature of assets rather than as an investment. It also recognizes its share of
any jointly incurred liabilities and expenses, and revenue from the sale or use of
its share of the output of the joint venture. Similarly with the jointly controlled
operations, each venturer recognizes joint venture transactions in their own
books of account

 Jointly Controlled Entities

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 binding
arrangement between the venturers establishes joint control over the activity of
the entity. (Par. 29, IPSAS 8)
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 ACCOUNTING FOR CHAPTER 11
GOVERNMENT &
NON-PROFIT
INTERESTS IN JOINT VENTURES
ORGANIZATIONS MODULE CONTENTS

A jointly controlled entity controls the assets of the joint venture, incurs liabilities
and expenses and earns revenue. It may enter into contracts in its own name and
raise finance for the purposes of the joint venture activity. Each venturer is
entitled to a share of the surpluses of the jointly controlled entity, although some
jointly controlled entities also involve a sharing of the output of the joint venture.
(Par. 30, IPSAS 8)

A jointly controlled entity maintains its own accounting records and prepares
and presents financial statements in the same way as other entities in conformity
with IPSASs, or other accounting standards if appropriate. (Par. 33, IPSAS 8)

Each venturer usually contributes cash or other resources to the jointly controlled
entity. These contributions are included in the accounting records of the
venturer and recognized in its financial statements as an investment in the jointly
controlled entity. (Par. 34, IPSAS 8)

Forms and Structures of Joint Ventures under IPSAS 36

The following are the two forms of joint ventures:
 Joint operations – the parties to the arrangement have rights to the assets and
obligations for the liabilities relating to the arrangement

 Joint venture – the parties to the arrangement have rights to the net assets of the
arrangement.

Significant influence but not joint control

An investor in a joint venture that does not have joint control, but does have significant
influence, shall account for its interest in a joint venture as an investment in associates.
Significant influence is the power to participate in the financial and operating policy
decisions of an activity but is not control or joint control over those policies.

Guidance on accounting for interests in joint ventures where an investor does not have
joint control or significant influence can be found in IPSAS 29-Financial Instruments:
Recognition and Measurement.

MEASUREMENT
INITIAL MEASUREMENT

Measurement Under IPSAS 8

 Jointly Controlled Operations – record your own transactions; recognize your
share in sales.

 Jointly Controlled Assets – record your own transactions; recognize your share
in JV’s assets, liabilities, income and expenses.

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GOVERNMENT &
NON-PROFIT
INTERESTS IN JOINT VENTURES
ORGANIZATIONS MODULE CONTENTS

 Jointly Controlled Entities – record your interest in the “Investment in Joint

Venture” account and account for it under the equity method. It is measured at
cost.

Measurement under IPSAS 36

 Joint operations – records its share of the assets, liabilities, revenue, and
expenses of the joint arrangement

 Joint venture – requires be accounted for using the equity method. It is

measured at cost

Equity method
It is a method of accounting whereby an interest in a jointly controlled entity is initially
recognized at cost, and adjusted thereafter for the post-acquisition change in the
venturer’s share of net assets/equity of the jointly controlled entity. The surplus or
deficit of the venturer includes the venturer’s share of the surplus or deficit of the
jointly controlled entity.

Interests in jointly controlled entities for which there is evidence that the interest is
acquired and held exclusively with a view to its disposal within twelve months from
acquisition, and that management is actively seeking a buyer, as set out in paragraph
3(a) of IPSAS 8-Interests in Joint Ventures, shall be classified as held for trading and
accounted for in accordance with Financial Instruments.

SUBSEQUENT MEASUREMENT
This is for Jointly Controlled Entities under IPSAS 8 and/or Joint venture under IPSAS
36 only.

Under equity method, the following are the subsequent measurements:

 The carrying amount of the investment is adjusted subsequently to recognize the
venturer’s share in the surplus or deficit of the jointly controlled entity.

 The investment is decreased for every distributions received.

 The carrying amount will also be adjusted to reflect the venturer’s proportionate
interest in the adjusted net assets of the jointly controlled entity, if the net assets
did change.

 The entity shall discontinue the use of the equity method from the date on which
it ceases to have joint control over, or have significant influence in, a jointly
controlled entity

Transactions between a Venturer and a Joint Venture

When a venturer contributes or sells assets to a joint venture, recognition of any portion
of a gain or loss from the transaction shall reflect the substance of the transaction.
While the assets are retained by the joint venture, and provided the venturer has
transferred the significant risks and rewards of ownership, the venturer shall recognize
only that portion of the gain or loss that is attributable to the interests of the other
venturers. The venturer shall recognize the full amount of any loss when the
contribution or sale provides evidence of a reduction in the net realizable value of
current assets or an impairment loss.

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GOVERNMENT &
NON-PROFIT
INTERESTS IN JOINT VENTURES
ORGANIZATIONS MODULE CONTENTS

When a venturer purchases assets from a joint venture, the venturer shall not recognize
its share of the gains of the joint venture from the transaction until it resells the assets to
an independent party. A venturer shall recognize its share of the losses resulting from
these transactions in the same way as gains, except that losses shall be recognized
immediately when they represent a reduction in the net realizable value of current
assets or an impairment loss.

Operators of Joint Ventures

Operators or managers of a joint venture shall account for any fees in accordance with
IPSAS 9-Revenue from Exchange Transactions.

Management fee paid to venturer as operator or manager of a joint venture shall be

accounted for as an expense in the books of the joint venture.

PRESENTATION
For the Jointly Controlled Entities/Joint Venture, Investments in Joint Venture are
presented as non-current asset. This Manual does not mandate which entities produce
separate financial statements available for public use.

DISCLOSURES
A venturer shall disclose:
 The aggregate amount of the following contingent liabilities, unless the
possibility of any outflow in settlement is remote, separately from the amount of
other contingent liabilities:
o Any contingent liabilities that the venturer has incurred in relation to its
interests in joint ventures, and its share in each of the contingent liabilities
that have been incurred jointly with other venturers
o Its share of the contingent liabilities of the joint ventures themselves for
which it is contingently liable
o Those contingent liabilities that arise because the venturer is contingently
liable for the liabilities of the other venturers of a joint venture

 A brief description of the following contingent assets and, where practicable, an

estimate of their financial effect, where an inflow of economic benefits or service
potential is probable:
o Any contingent assets of the venturer arising in relation to its interests in joint
ventures and its share in each of the contingent assets that have arisen jointly
with other venturers
o Its share of the contingent assets of the joint ventures themselves

 The aggregate amount of the following commitments in respect of its interests in

joint ventures separately from other commitments:
o Any capital commitments of the venturer in relation to its interests in joint
ventures and its share in the capital commitments that have been incurred
jointly with other venturers; and
o Its share of the capital commitments of the joint ventures themselves.

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 ACCOUNTING FOR CHAPTER 11
GOVERNMENT &
NON-PROFIT
INTERESTS IN JOINT VENTURES
ORGANIZATIONS MODULE CONTENTS

 A listing and description of interests in significant joint ventures and the

proportion of ownership interest held in jointly controlled entities. A venturer
that recognizes its interests in jointly controlled entities using the equity method
shall disclose the aggregate amounts of each of current assets, non-current assets,
current liabilities, non-current liabilities, revenue, and expenses related to its
interest in joint ventures

 The method it uses to recognize its interests in jointly controlled entities.

REFERENCES
Government Accounting Manual for National Government Agencies, Volume I
 Chapter 15 – Interests in Joint Ventures

International Public Sector Accounting Standards

 IPSAS 8 Interests in Joint Ventures
 IPSAS 36 Investments in Associates and Joint Ventures
 IPSAS 37 Joint Arrangements

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 ACCOUNTING FOR CHAPTER 11
GOVERNMENT &
NON-PROFIT
INTERESTS IN JOINT VENTURES
ORGANIZATIONS MODULE CONTENTS

ILLUSTRATIVE ACCOUNTING ENTRIES

Jointly Controlled Operations

Entities A and B tendered jointly for a public contract with an LGU to construct a
motorway between two municipalities. Following the tender process, the LGU
awarded the contract jointly to entities A and B. In accordance with the contractual
arrangements, entities A and B are jointly contracted with the LGU for delivery of the
motorway in return for a fixed price contract of P16 million.

In accordance with the agreement between entities A and B:

 Entities A and B each used their own equipment and employees in the
construction activity:
 Entity A constructed three bridges needed to cross rivers on the route at a cost of
P5 million;
 Entity B constructed all of the other elements of the motorway at a cost of P7
million; and
 Entities A and B shared equally in the P16 million jointly invoiced from the LGU.

Entity A
Account Title Account Code Debit Credit
Construction in 10699020 5,000,000
ProgressInfrastructure Assets
Cash in Bank-Local Currency, 10102020 5,000,000
Current Account
To recognize payment for the construction cost incurred for putting up three bridges

Account Title Account Code Debit Credit

Road Networks 50301020 5,000,000
Construction in 20101090 5,000,000
ProgressInfrastructure Assets
To recognize completion of construction of three bridges

Account Title Account Code Debit Credit

Cash in Bank-Local Currency, 10102020 8,000,000
Current Account
Road Networks 10603010 5,000,000
Other Business Income 40202990 3,000,000
To recognize the revenue earned and the turn-over to LGU of the completed three bridges

Entity B
Account Title Account Code Debit Credit
Construction in 10699020 7,000,000
ProgressInfrastructure Assets
Cash in Bank-Local Currency, 10611011 7,000,000
Current Account
To recognize payment for the construction cost incurred for putting up the all other elements of
the motorway

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GOVERNMENT &
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INTERESTS IN JOINT VENTURES
ORGANIZATIONS MODULE CONTENTS

Account Title Account Code Debit Credit

Road Networks 10603010 7,000,000
Cash in Bank-Local Currency, 10102020 7,000,000
Current Account
To recognize construction cost incurred for building all of the other elements of the motorway

Account Title Account Code Debit Credit

Cash in Bank-Local Currency, 10102020 8,000,000
Current Account
Road Networks 10603010 7,000,000
Other Business Income 40202990 1,000,000
To recognize the service concession asset

The above illustration is an example of a jointly controlled operation because entities A

and B have retained control of the assets they use to perform the contract requirements
and are responsible for their respective liabilities. They meet their respective contractual
obligations by providing construction services to the LGU. Entities A and B recognize in
their financial statements their own PPE and operating assets. They also recognize the
income and expenses associated with providing construction services to the LGU.

Jointly Controlled Assets

Entities A, B and C contractually form a Joint Venture operation on January 2, 2014 to
construct an oil well to extract oil that each of the venturer will purify. The three
companies agree to contribute the following amounts of capital to the venture in the
same proportion as their rights to the assets and outputs.

Entity Amount of Capital Contribution Share %

A 37,500,000 50
B 22,500,000 30
C 15,000,000 20
Total 75,000,000 100

On January 15, 2014 the resources are used to purchase land for P15 million and an
oilrig and other equipment for P35 million. The balance of P25 million will be called on
by the joint venture manager as required. B and C companies borrowed P5 million and
P7 million, respectively, to finance their contributions to the joint venture.

Entity A
Account Title Account Code Debit Credit
Land 10601010 7,500,000
Construction and Heavy 10605080 17,500,000
Equipment
Cash in Bank-Local Currency, 10102020 25,000,000
Current Account
To recognize the jointly controlled assets in the books of the venturers

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GOVERNMENT &
NON-PROFIT
INTERESTS IN JOINT VENTURES
ORGANIZATIONS MODULE CONTENTS

Entity B
Account Title Account Code Debit Credit
Land 10601010 4,500,000
Construction and Heavy 10605080 10,500,000
Equipment
Cash in Bank-Local Currency, 10102020 10,000,000
Current Account
Loans PayableDomestic 10102020 5,000,000
To recognize the jointly controlled assets in the books of the venturers

Entity C
Account Title Account Code Debit Credit
Land 10601010 3,000,000
Construction and Heavy 10605080 7,000,000
Equipment
Cash in Bank-Local Currency, 10102020 3,000,000
Current Account
Loans PayableDomestic 10102020 7,000,000
To recognize the jointly controlled assets in the books of the venturers

Jointly Controlled Entities

Entities M and N were partners in a joint venture, Entity MN, sharing profits and losses
at 80% and 20%, respectively. Details are as follows:

Particulars Entity M Entity N Entity MN

Cash contributed 1,600,000 400,000 2,000,000
Merchandise Inventory contributed 7,200,000 1,800,000 9,000,000
Merchandise Inventory contributed 700,000
Sales 12,000,000
Expenses 600,000
Net Profit 2,480,00 620,000 3,100,000

Entity M (Venturer)
Account Title Account Code Debit Credit
Investment in Joint Venture 10205010 1,600,000
Cash in Bank-Local Currency, 10102020 1,600,000
Current Account
To recognize the cash contributed to Entity MN

Account Title Account Code Debit Credit

Investment in Joint Venture 10205010 7,200,000
Merchandise Inventory 10401010 7,200,000
To recognize the value of goods given to Entity MN

Account Title Account Code Debit Credit

Investment in Joint Venture 10205010 2,480,000
Share in the Profit of Joint 40202220 2,480,000
Venture
To recognize the share in the profit of joint venture, Entity MN

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GOVERNMENT &
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INTERESTS IN JOINT VENTURES
ORGANIZATIONS MODULE CONTENTS

Entity N (Venturer)
Account Title Account Code Debit Credit
Investment in Joint Venture 10205010 400,000
Cash in Bank-Local Currency, 10102020 400,000
Current Account
To recognize the cash contributed to Entity MN

Account Title Account Code Debit Credit

Investment in Joint Venture 10205010 1,800,000
Merchandise Inventory 10401010 1,800,000
To recognize the value of goods given to Entity MN

Account Title Account Code Debit Credit

Investment in Joint Venture 10205010 620,000
Share in the Profit of Joint 40202220 620,000
Venture
To recognize the share in the profit of joint venture, Entity MN

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