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CA Final · Financial Reporting · Ind AS 111 Joint Arrangements

Kaveri Textiles Ltd and Narmada Fabrics Ltd have an arrangement in which they hold joint control, and the contractual terms give them rights to the assets and obligations for the liabilities of the arrangement. Under Ind AS 111, what is the first step in determining whether the arrangement falls within the Standard's definition?

The first step is to establish that two or more parties have joint control, because Ind AS 111 defines a joint arrangement as an arrangement of which two or more parties have joint control. Classification into a joint operation or a joint venture follows only after joint control is confirmed.

  1. AConfirm that two or more parties have joint control of the arrangement, because that is what makes it a joint arrangementCorrect
  2. BCheck whether the arrangement is carried out through a separate legal entity
  3. CMeasure the fair value of the net assets contributed by each party
  4. DCompute each party's share of profit to see whether it exceeds 20%

Explanation

Ind AS 111 defines a joint arrangement as an arrangement of which two or more parties have joint control. Joint control must therefore be established first, and only then is the arrangement classified as a joint operation or a joint venture. Legal form, fair value and a profit share threshold are not the first test.

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