Page 25 - UNISA Test 2 Slides - Joint Arranagemenst (Finac2)

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
contractual arrangement.

25