Page 24 - UNISA Test 2 Slides - Joint Arranagemenst (Finac2)

JOINT ARRANGEMENTS

Basic Example 2

• A Ltd and B Ltd are parties to a joint arrangement and they

have agreed to manufacture a product together. The

manufacturing agreement is structured in a separate

vehicle, entity P. The legal form causes it to be considered in

its own right, and thus the assets and liabilities held in entity

P are the assets and liabilities of entity P and not the assets

and liabilities of the parties A Ltd and B Ltd.

• The contractual agreement between the parties state that

the parties will purchase the entire production of the

product manufactured by entity P. Entity P will sell the
product to the parties at a price as agreed by A Ltd and B

Ltd. Any cash flow shortages of entity P will be financed by A

Ltd and B Ltd in accordance with their ownership interests.

24