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Commission Regulation (EC) No 1725/2003 of 29 September
2003 adopting certain international accounting standards
in accordance with Regulation (EC) No 1606/2002 of the
European Parliament and of the Council.
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Jointly controlled entities -
non-monetary contributions by venturers
Paragraph 11 of IAS 1 (revised 1997), presentation of
financial statements, requires that financial statements
should not be described as complying with International
Accounting Standards unless they comply with all the
requirements of each applicable standard and each applicable
interpretation issued by the Standing Interpretations
Committee. SIC interpretations are not intended to apply to
immaterial items.
Reference: IAS 31 (revised 1998), financial reporting of
interests in joint ventures.
Issue
1. IAS 31.39 (revised 1998) refers to both contributions
and sales between a venturer and a joint venture as follows: "When
a venturer contributes or sells assets to a joint venture,
recognition of any portion of a gain or loss from the
transaction should reflect the substance of the transaction".
In addition, IAS 31.19 (revised 1998) says that "a jointly
controlled entity is a joint venture which involves the
establishment of a corporation, partnership or other entity in
which each venturer has an interest". There is no explicit
guidance on the recognition of gains and losses resulting from
contributions of non-monetary assets to jointly controlled
entities ("JCEs").
2. Contributions to a JCE are transfers of assets by
venturers in exchange for an equity interest in the JCE. Such
contributions may take various forms. Contributions may be
made simultaneously by the venturers either upon establishing
the JCE or subsequently. The consideration received by the
venturer(s) in exchange for assets contributed to the JCE may
also include cash or other consideration that does not depend
on future cash flows of the JCE ("additional consideration").
3. The issues are:
(a) when the appropriate portion of gains or losses
resulting from a contribution of a non-monetary asset to a JCE
in exchange for an equity interest in the JCE should be
recognised by the venturer in the income statement;
(b) how additional consideration should be accounted for by
the venturer; and
(c) how any unrealised gain or loss should be presented in
the consolidated financial statements of the venturer.
4. This interpretation deals with the venturer's accounting
for non-monetary contributions to a JCE in exchange for an
equity interest in the JCE that is accounted for using either
the equity method or proportionate consolidation.
Consensus
5. In applying IAS 31.39 to non-monetary contributions to a
JCE in exchange for an equity interest in the JCE, a venturer
should recognise in the income statement for the period the
portion of a gain or loss attributable to the equity interests
of the other venturers except when:
(a) the significant risks and rewards of ownership of the
contributed non-monetary asset(s) have not been transferred to
the JCE;
(b) the gain or loss on the non-monetary contribution
cannot be measured reliably; or
(c) the non-monetary assets contributed are similar to
those contributed by the other venturers. Non-monetary assets
are similar to those contributed by other venturers when they
have a similar nature, a similar use in the same line of
business and a similar fair value. A contribution meets the
similarity test only if all of the significant component
assets thereof are similar to those contributed by the other
venturers.
Where any of the exceptions (a) through (c) applies, the
gain or loss would be considered unrealised and would
therefore not be recognised in the income statement unless
paragraph 6 also applies.
6. If, in addition to receiving an equity interest in the
JCE, a venturer receives monetary or non-monetary assets
dissimilar to those it contributed, an appropriate portion of
gain or loss on the transaction should be recognised by the
venturer in the income statement.
7. Unrealised gains or losses on non-monetary assets
contributed to JCEs should be eliminated against the
underlying assets under the proportionate consolidation method
or against the investment under the equity method. Such
unrealised gains or losses should not be presented as deferred
gains or losses in the venturer's consolidated balance sheet.
Date of consensus: June 1998.
Effective date: this interpretation becomes effective for
annual financial periods beginning on or after 1 January 1999;
earlier application is encouraged. Changes in accounting
policies should be accounted for according to the transition
requirements of IAS 8.46.
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