IFRS vs ASPE – Joint Arrangements (Differences and Examples)

Which of the following best describes how investments in jointly controlled enterprises must be accounted for under ASPE?

Using either the cost method or the equity method

Leon Inc. is a party with joint control in a joint arrangement. Leon reports under ASPE. The joint arrangement is not a separate legal entity. Leon reports its share of the revenue and expenses of the joint arrangement on its income statement. Leon has made no elections with respect to this arrangement.

Which of the following correctly describes the nature of this joint arrangement?

Jointly controlled operation

On January 1, Year 1, Morning Co. and Night Inc. formed a jointly controlled enterprise called All Day Ltd. (ADL). All three entities report under ASPE. Morning invested plant and equipment with a carrying value of $200,000 and a fair value of $500,000 for a 30% interest in the venture. At the time of the investment, the equipment had an estimated remaining useful life of 5 years. Night contributed assets with a fair value of $1,200,000 (including $200,000 in cash) for a 70% stake in ADL. The fair value of the assets contributed by Night was the same as their carrying value. ADL reported net income of $100,000 for the first fiscal year ended December 31. Both companies and the jointly controlled enterprise have a December 31 year end. Assume that all transactions have commercial substance.Assuming Morning has chosen to account for its interest in ADL using the equity method, what is the balance in Morning’s investment in ADL account on December 31, Year 1?

Correct! The balance is calculated as follows:

Fair value of 30% interest in ADL	$500,000
Unrealized gain — investor’s share at the date the jointly controlled enterprise was formed [($500,000 – $200,000) × 30%]	(90,000)
Year 1 realization of gain ($90,000 / 5 years)	18,000
Morning’s share of ADL’s net income ($100,000 × 30%)	30,000
Balance in account on December 31, Year 1	$458,000

Suez Potato Inc. (Suez) enters into a joint arrangement with two other parties, the details of which are as follows:

• The three parties jointly purchased a warehouse and machinery.

• All three parties share equally in costs of the assets.

• Decisions must be unanimous in the use of the assets.

Which of the following best describes how Suez should classify this arrangement? Assume Suez reports under ASPE.

Jointly controlled assets

Which of the following statements best describes the differences between IFRS and ASPE in the terminology for joint arrangements?

Jointly controlled enterprise under ASPE are substantially the same as JVs under IFRS