IFRS 11 sets out the accounting principles for arrangements where two or more parties share joint control.
Joint control exists only when decisions about relevant activities require unanimous consent of the parties sharing control.
1. Types of Joint Arrangements
IFRS 11 classifies joint arrangements into two types:
A. Joint Operation
The parties (joint operators) have:
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Rights to assets, and
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Obligations for liabilities
of the arrangement.
When is it a Joint Operation?
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The arrangement is not a separate vehicle, OR
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The separate vehicle is only a shell (no economic separation), OR
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Contractual terms give parties direct rights to assets and obligations for liabilities.
Accounting Treatment
Each joint operator recognizes its share of:
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Assets
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Liabilities
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Revenue
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Expenses
Line-by-line in their own financial statements.
B. Joint Venture
The parties (joint venturers) have:
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Rights to the net assets of the arrangement.
When is it a Joint Venture?
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The arrangement is a separate legal entity, AND
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Parties do not have direct rights to assets or obligations for liabilities.
Accounting Treatment
Joint venturers must use the equity method under IAS 28.
2. Practical Examples
Example 1: Joint Operation (No Separate Vehicle)
Companies A and B agree to develop a mine:
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They share assets (equipment, land)
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They each take 50% of the production
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They each pay 50% of costs
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No new legal entity is created
Classification → Joint Operation
Each party records:
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50% of mining equipment
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50% of liabilities
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50% of revenue and expenses
Example 2: Joint Operation (Separate Vehicle, but Direct Rights)
A and B form AB Partnership (a legal entity).
Contract says:
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Assets used in the business belong directly to A and B
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AB Partnership is only an administrative vehicle
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A and B guarantee all liabilities directly
Even with a separate entity → JOINT OPERATION
A and B each recognize their share of assets and liabilities directly.
Example 3: Joint Venture (Separate Vehicle + Net Asset Rights)
Company X and Y form XY Co. (a separate legal entity):
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XY Co. owns all assets
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XY Co. is responsible for liabilities
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X and Y share profits 50:50
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They cannot withdraw assets except via dividends
Classification → JOINT VENTURE
X and Y use the equity method:
Example (Year 1):
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Invested: $500,000 each
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XY Co. profit: $200,000
Each investor recognizes:
Share of profit = 50% × 200,000 = $100,000
Increase investment balance:
Dr Investment in JV 100,000
Cr Share of profit (P/L) 100,000
Example 4: Joint Venture – Real Estate Project
Two developers form a new company (RealCo Ltd.) to build a condominium:
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RealCo owns the land
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RealCo sells units and incurs liabilities
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Developers share net assets
→ Joint Venture (Equity method)
Example 5: Joint Operation – Oil & Gas Consortium
Oil companies C and D sign an agreement to explore a field:
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No separate company created
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Each owns its share of output
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Each pays its share of costs
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They share liabilities
→ Joint Operation
C and D recognize their proportionate assets, liabilities, revenue, and expenses.
3. Key Judgement Factors in Classification
To determine JO or JV, consider:
1. Structure (Separate vehicle or not?)
No vehicle → usually JO.
2. Legal form of the vehicle
Some vehicles legally separate ownership → likely JV.
3. Terms of the contractual arrangement
Do investors have direct rights/obligations? JO.
4. Other facts and circumstances
For example:
Output is taken directly by parties → JO.
4. Changes in Participation
If rights change:
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Joint operation → joint venture
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Or vice versa
Reassess classification.
Example:
If contractual terms change so parties now only have rights to net assets → becomes a joint venture.
5. Disclosures (Summary)
Entities must disclose:
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Nature of joint arrangements
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Risks and benefits
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Summarized financial information (for joint ventures)
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Commitments and contingencies
6. Quick Comparison Table
| Feature | Joint Operation | Joint Venture |
|---|---|---|
| Rights | Direct rights to assets | Rights to net assets |
| Liabilities | Direct obligations | No direct obligations |
| Legal entity | Possible but not decisive | Usually has a separate entity |
| Accounting | Recognize share of assets/liabilities | Equity method |
| Output | Typically taken by parties | Taken through profit share |
More for three points as follows:
✅ IFRS 11 vs IFRS 10 vs IFRS 12 comparison (clean table)
✅ Example of how JO vs JV affects financial statements
✅ Scenario-based classification questions
✅ 1. IFRS 10 vs IFRS 11 vs IFRS 12 — Clean Comparison Table
| Topic | IFRS 10 | IFRS 11 | IFRS 12 |
|---|---|---|---|
| Standard Name | Consolidated Financial Statements | Joint Arrangements | Disclosure of Interests in Other Entities |
| Focus | Defines control and when to consolidate subsidiaries | Defines joint control and classification of joint arrangements | Requires disclosures for subsidiaries, associates, JVs, and structured entities |
| Key Principle | A parent consolidates all entities it controls | Classify a joint arrangement as: • Joint Operation (JO) • Joint Venture (JV) |
Provide information to assess: • Nature of interests • Risks • Financial effects |
| Control Definition | Power + Exposure to variable returns + Ability to use power to affect returns | Unanimous consent required for decisions about relevant activities | Not applicable — disclosure only |
| Types of Entities Covered | Subsidiaries | Joint operations & joint ventures | Subsidiaries, JVs, associates, unconsolidated structured entities |
| Accounting Method Required | Full consolidation | JO → Share of assets/liabilities JV → Equity method |
Not applicable (disclosure only) |
| Key Outputs | Consolidated financial statements | Proper classification and accounting for JOs/JVs | Extensive note disclosures |
| Examples | Parent owns 80% of subsidiary | 2 companies jointly run a mine → JO New separate company formed → JV |
Disclose NCI, structured entities, JV summaries |
✅ 2. JO vs JV — Practical Example Showing Impact on Financial Statements
Assume Companies A and B each own 50% of a joint arrangement.
Scenario A → Joint Operation
Scenario B → Joint Venture
The joint arrangement has:
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Assets = $1,000,000
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Liabilities = $400,000
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Revenue = $600,000
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Expenses = $300,000
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Profit = $300,000
A. Joint Operation (JO)
A and B each recognize their share (50%) directly in their financial statements.
Company A Financial Statement Impact
Statement of Financial Position:
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Assets: +500,000
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Liabilities: +200,000
Profit or Loss:
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Revenue: +300,000
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Expenses: +150,000
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Profit: +150,000
There is no single “investment” account — everything is proportionately recognized line-by-line.
B. Joint Venture (JV)
A and B recognize their interest using the equity method.
Company A Financial Statement Impact
Statement of Financial Position:
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Investment in JV: +300,000
(50% of profit: 150,000 added to the investment balance)
Profit or Loss:
-
Share of profit from JV: +150,000
No assets, liabilities, revenue, or expenses of the JV appear directly.
Comparison Summary
| Item | Joint Operation | Joint Venture |
|---|---|---|
| Assets | Yes (proportionate) | No |
| Liabilities | Yes (proportionate) | No |
| Revenue/Expenses | Yes (proportionate) | No |
| “Investment in JV” account | No | Yes |
| Impact on key ratios (e.g., debt ratio) | Significant | Less impact |
| Profit recognition | Line-by-line | One line: “share of profit of JV” |
✅ 3. Scenario-Based Classification Questions (with answers)
Use these to test your understanding and classification skills.
Scenario 1 — Which Type of Joint Arrangement?
A & B form a company, AB Ltd.
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AB Ltd. owns all assets
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AB Ltd. is responsible for all liabilities
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A and B cannot take assets directly
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Decisions require unanimous consent
Answer:
➡️ Joint Venture (rights to net assets)
Scenario 2 — Joint Operation?
Two companies sign a contract to share:
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Equipment
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Output of production
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Liabilities
No new entity is created.
Answer:
➡️ Joint Operation
Scenario 3 — Separate Legal Entity, but JO?
A & B form a separate company.
Contract states:
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Assets belong directly to A and B
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Company is only for administrative processing
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Parties take output directly
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Parties guarantee liabilities directly
Answer:
➡️ Joint Operation
(separate vehicle does NOT automatically mean JV)
Scenario 4 — De facto Joint Control?
A, B, C each own 33.3% of a mining project.
All decisions must be unanimous.
Answer:
➡️ Joint Arrangement
But which type?
Look at rights:
If the vehicle holds assets → JV.
If parties hold direct rights → JO.
Scenario 5 — Classification Change
Originally a JO.
New contract now states:
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Assets belong only to the joint entity
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Operators no longer have direct asset rights
Answer:
➡️ Reclassify to Joint Venture
(when rights change → type changes)
Scenario 6 — Outsourcing Misunderstanding
A company hires another company to operate its plant.
No shared control.
Answer:
➡️ Not a joint arrangement
(joint control must require unanimous consent)
Scenario 7 — Potential Voting Rights?
Parties have potential voting rights, but unanimous consent is required.
Answer:
➡️ Still a joint arrangement
(Potential voting rights do NOT override unanimous consent.)