Page 22 - FAC4862 slides JAs and Revenue CM

JOINT ARRANGEMENTS

Basic Example 2

• Although a separate entity is established and the legal

structure creates separation between the parties and the

entity, and the contractual agreement does not specify that

the parties have rights to the assets and obligations for the

liabilities, other relevant facts and circumstances conclude

that the joint arrangement is a joint operation.

• The parties have committed themselves to purchasing the

entire production manufactured, thus A Ltd and B Ltd have

rights to all the economic benefits of the assets of the

agreement. The dependence of entity P on A Ltd and B Ltd,

which provide all financial assistance, results in A Ltd and B

Ltd having direct obligations for the liabilities of entity P.

• Each party to the joint operation should recognise in its

separate financial statements the share of the assets and

liabilities used for the specific task, and recognise its share of

the revenues and expenses in accordance with the
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contractual arrangement.