CMA Final · Corporate Financial Reporting

Accounting and Reporting of Joint Operation: formula sheet

Full chapter guide

Key formulas

Joint arrangement: Joint arrangement = arrangement with two or more parties having joint control; No joint control means Ind AS 111 does not apply.
Joint control: Joint control = contractually agreed sharing of control + unanimous consent on relevant activities; Both parts are needed. Unanimous consent of the parties sharing control, not of every party.
Joint operation: Rights to assets + obligations for liabilities; Each joint operator recognises its share of assets, liabilities, revenue and expenses.
Joint venture: Rights to the net assets of the arrangement; Classification looks at rights and obligations in the normal course of business.
Separate vehicle test: Legal form → contractual terms → other facts and circumstances; A separate vehicle can be either a joint operation or a joint venture. Move to the next step only if the earlier step does not settle it.
Items a joint operator recognises (para 20): Own assets + share of joint assets; own liabilities + share of joint liabilities; revenue from own share of output + share of revenue from output sold by the joint operation; own expenses + share of joint expenses; Use the share fixed in the contractual arrangement, not the capital contributed, unless the contract links them.
Measurement rule (para 21): Each asset, liability, revenue and expense is accounted for under the Ind AS applicable to it; For example, Ind AS 16 for plant and Ind AS 115 for revenue.
Share of a jointly held item: Share of item = Total item × Operator's agreed share %; Apply the same % to every joint item unless the agreement says otherwise.
Gain recognised on sale or contribution of assets (B34): Gain recognised = Total gain × Share of other parties in the joint operation; Equals total gain less operator's own share. The operator's own share is unrealised and eliminated.
Loss on sale or contribution due to NRV fall or impairment (B35): Loss recognised = 100% of the loss; Applies when the transaction is evidence of reduced net realisable value or impairment. No proportionate elimination.
Purchase of assets from joint operation (B36): Operator's share of gain or loss recognised on purchase = Nil until resale to a third party; On resale outside, the deferred share is recognised.
Loss on purchase due to NRV fall or impairment (B37): Loss recognised = Operator's share of the loss; Recognised immediately, not deferred.
Classification test: Rights to assets and obligations for liabilities → joint operation; rights to net assets → joint venture; This is the test in the application guidance (B14). Look at the rights and obligations arising in the normal course of business.
Joint operator's accounting: Recognise own share of assets, liabilities, revenues and expenses, each under the applicable Ind AS; Share is determined as per the operator's rights and obligations under the arrangement (paragraphs 20-21). Do not use the equity method.
Acquisition of interest in a business joint operation: Apply Ind AS 103 principles to your share: assets and liabilities at fair value, acquisition costs expensed, goodwill = excess of consideration over net identifiable assets; Paragraphs 21A and B33A. Costs to issue debt or equity are accounted for under Ind AS 32 and Ind AS 109. Deferred tax is not recognised on initial goodwill.
Goodwill impairment: Test the cash-generating unit with allocated goodwill at least annually, and whenever there is an indication of impairment; Part of B33A(e), under Ind AS 36.
Additional interest, joint control retained: Previously held interest is not remeasured; Paragraph B33C. Applies when the joint operator keeps joint control.
Obtaining joint control: Previously held interest is not remeasured; Paragraph B33CA. Applies to a party that was in the joint operation without joint control.
Common control exception: Parties under common control of the same ultimate controlling party both before and after, control not transitory → Appendix C of Ind AS 103; Paragraph B33D. Paragraphs 21A and B33A-B33C do not apply.

Quick revision

A joint operation: parties with joint control have rights to the assets and obligations for the liabilities.
A joint operator is a party to a joint operation that has joint control of it.
In a joint operation you recognise your share of assets, liabilities, revenue and expenses line by line.
Sale or contribution of assets to the operation: recognise gains and losses only to the extent of the other parties' interests (B34).
If such a sale shows a fall in net realisable value or an impairment, the joint operator recognises the loss fully (B35).
Purchase of assets from the operation: do not recognise your share of the gains or losses until you resell to a third party (B36).
If a purchase shows a fall in net realisable value or impairment, recognise your share of the loss (B37).
Acquiring more interest in a joint operation that is a business: previously held interest is not remeasured if joint control is retained (B33C).
Obtaining joint control of a joint operation that is a business: previously held interests are not remeasured (B33CA).
Forming a joint operation: paragraphs 21A and B33A (the Ind AS 103 business combination principles) apply only if an existing business is contributed by one of the parties (B33B).
Common control acquisitions, where control is not transitory, follow Appendix C of Ind AS 103 (B33D).
Apply the sharing ratio to your own share. On a sale or contribution, your own share of the gain or loss is not recognised; only the other parties' share is (B34). On a purchase, defer your own share until resale to a third party (B36).

Common mistakes

Treating every arrangement with two or more parties as a joint arrangement. Fix: Always test for contractually agreed sharing of control and unanimous consent on relevant activities first.
Assuming a separate vehicle always means a joint venture. Fix: Remember a separate vehicle can be either type. Check legal form, contract and other facts before concluding.
Showing a single "investment in joint operation" line. Fix: For a joint operation, recognise assets, liabilities, revenue and expenses line by line as per paragraph 20.
Leaving out the operator's own assets used for its specific task. Fix: Para B17 says each joint operator recognises the assets and liabilities used for its specific task. Add them to your share of joint items.
Recognising the full gain on sale of an asset to the joint operation. Fix: Remember the operator owns part of the buyer. Recognise gain only for the other parties' share (B34).
Recognising only a proportionate part of a loss caused by impairment. Fix: Where the loss shows lower net realisable value or impairment, recognise it fully on a sale or contribution (B35).
Showing the interest as one-line investment using the equity method. Fix: Confirm the classification first. A joint operator recognises its own share of line items.
Capitalising acquisition-related costs into goodwill. Fix: Expense them in the period the costs are incurred and services received. Debt and equity issue costs follow Ind AS 32 and Ind AS 109.

Exam tips

Write the joint control test first in every case scenario. Marks are often given for it.
Use the exact phrases: rights to assets and obligations for liabilities versus rights to net assets.
In MCQs, watch for options that classify by name or by 'separate company' alone. These are traps.
Show the order of assessment for separate vehicles: legal form, contractual terms, other facts and circumstances.
Link classification to accounting in one line. It earns marks and prepares you for joint operation problems.
Write the paragraph 20 list in your answer. Examiners give marks for naming what is recognised.
Always state the sharing ratio you use. If the question is silent, state your assumption.
In case scenarios, say why the arrangement is a joint operation before you compute anything.