6.7 Investments in associates and joint ventures

Question 1

What is a joint venture?

Answer 1

A business arrangement whereby the parties have joint control of the arrangement and agree to poll their resources for the purpose of accomplishing a specific task.

Question 2

Why might an entity conduct some of its business through associates or joint ventures?

Answer 2

To avoid group accounting requirements.

Question 3

Which standard deals with accounting for investments and associates?

Answer 3

IAS 28

Question 4

What is an associate?

Answer 4

An entity over which an investor has significant influence, but which is neither a subsidiary nor an interest in a joint venture. (typically a 20%-50% shareholding).

Question 5

How might significant influence be determined for the purpose of identifying an associate?

Answer 5

By the following:

• representation on the board of directors
• participation in the policy making process
• material transactions between an investor and investee
• interchange of management personnel
• provision of essential technical information

Question 6

Which accounting standard deals with joint ventures?

Answer 6

IFRS 11 (Joint Arrangements)

Question 7

For what reasons might a joint venture be established?

Answer 7

• business expansion
• development of new products
• moving into new markets such as those overseas