Section 15 – Differences

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Old GAAP	FRS 102	Further Comment On Differences
There are two forms of joint ventures, namely: · a joint arrangement; and · a joint arrangement that is not an entity (structures with the form but not the substance of a joint venture).	There are three forms of joint ventures, namely: · jointly controlled operations – These are effectively operations where equipment etc. is shared but ownership does not pass to another party. It is in fact not a legal entity; · jointly controlled assets – These are effectively operations where venturers contribute equally towards the cost of one or more assets and they are owned jointly; and · jointly controlled entities – These are joint ventures that involve the establishment of a corporation, partnership or other entity in which the venture has an interest and there is a contractual arrangement between the venturers establishing joint control over the economic activity. Therefore, on adoption of FRS 102, companies will need to re-assess the contractual arrangements to assess what form of joint venture they fall into under Section 15. Jointly controlled operations and jointly controlled assets (Section 15) is similar to joint arrangements that is not an entity (FRS 9). The accounting for these are the same.	Given that there are three types of joint ventures under FRS 102 and only two under old GAAP, on adoption of FRS 102, companies will need to re-assess the contractual arrangements to assess what form of joint venture they fall into under FRS 102. Under old GAAP, there was a concept of JANEs. These were joint ventures where although the joint venture may have been a separate legal entity, in substance they were not and as a result under old GAAP the equity method of accounting was not required. Instead the results were included in the normal sales, purchases etc. of the venturer similar to jointly controlled assets and operations. However on transition, entities may find that some of these JANEs are in fact legal entities under Section 15. As they are legal entities it comes within the definition of a jointly controlled entity which should be accounted for under the equity method of accounting. (Note: this adjustment only effects the consolidated financial statements and will not require a transition adjustment to be posted to reserves on the date of transition (instead it will effect comparative years results)). The parent entity financial statements are not affected as equity method accounting would not be used in those financial statements. If this is the case in the comparative period, an adjustment will be required to account for this under the equity method. The net effect would be that the assets/liabilities currently shown within their respective balances on the balance sheet would now be transferred to an investment on the balance sheet. The profit for the comparative year would also be restated where by the sales, purchases etc relating to the JANE were moved from the respective revenue, cost of sales line etc to the one line ‘share of profit in joint venture’. See attached an example of how such a transition adjustment should be posted (Example 46 – JANE Reclassified As A Jointly Controlled Entity)
A joint venture in the separate financial statements is measured under either; the cost model or fair value model through the STRGL.	A joint venture in the separate financial statements is measured under either; the cost model, fair value model through the OCI or FVTPL. The FVTPL is an additional option under Section 15.	Where an entity adopts a model of fair valuing through the profit and loss account, an adjustment will be required on transition including the deferred tax impact. See attached an example detailing the journals required (Example 47 – Investments In Joint Ventures). Where on transition, an entity adopts a policy of fair valuing through the OCI an adjustment will also be required on transition including the deferred tax impact. See attached an example detailing the journals required (Example 48 – Adoption Of Fair Value Through Profit And Loss On Transition). Where an entity previously carried investment in associates at fair value through OCI and from then on deems this as its costs as allowed under Section 35(10) discussed below deferred tax will need to be recognised on same on transition. The transition journals required are the same as those required where the previous valuation is taken as deemed cost. See attached example of same (Example 48 – Adoption Of Fair Value Through Profit And Loss On Transition). Where an entity continues to adopt a cost model no transition adjustments are required.
In the consolidated financial statements, joint ventures which are JANE’s account for its share of the assets, liabilities and cash flows.	In the consolidated financial statements, joint ventures which are jointly controlled operations and jointly controlled assets account for its share of the assets, liabilities and cash flows.	No differences.
FRS 9 requires the continued recognition of losses, even if they exceed the cost of the investment which are shown as provisions.	Losses should be recognised until the carrying amount of the investment is reduced to nil and no further losses are recognised unless the entity has a legal or constructive obligation or has made payments on behalf of the joint venture (Section 14.9).	Given the difference here, where joint ventures are in a net liability position at the date of transition, an adjustment will be required to derecognise those losses/provisions previously recognised under old GAAP. (Note there is no impact on the individual financial statements as this would not have been applicable as the investment would have been measured at cost less impairment or fair value). See attached an example detailing the journals required (Example 49 – Derecognition Of Joint Ventures Losses).
For equity accounted results (i.e. joint arrangements), the share of turnover, operating profit of joint ventures must be shown separately on the face of the profit and loss with interest and tax related to joint ventures being presented alongside the interest and tax line items in the group profit and loss account i.e. Gross equity accounting is required.	For equity accounted results (i.e. jointly controlled entity), the share of the income of the joint venture is to be presented as one line, after the effects of interest and tax i.e. Gross equity accounting is not to be utilised.	This is a disclosure difference. Under FRS 102, the amount of turnover and operating profit attributable to joint ventures does not have to be disclosed, instead it can be included under the operating profit line (or alternatively after the profit on ordinary activities before tax) in the consolidated financial statements. See illustration of same in attached (Example 50 – Equity Method Profit and Loss Disclosure).
Old GAAP requires disclosure on the face of the balance sheet of the assets and liabilities of the associate. (only applicable for consolidated financial statements).	The net figure need only be shown on the face of the balance sheet. (only applicable for consolidated financial statements).	Section 15 provides less disclosure on the face of the balance sheet, however details of the movement in the investment in the joint venture should be shown in the notes similar to what was required under old GAAP.
Old GAAP requires the investment in associates and joint ventures to be shown separately on the face of the balance sheet: (only applicable for consolidated financial statements).	This is not required under FRS 102: (only applicable for consolidated financial statements).	Merely a disclosure requirement, no transition adjustment. The investment in the joint venture and associate can be shown as one-line item in the balance sheet.
Not applicable.	For individual entity financial statements the investment can be measured at cost or fair value. Section 35.10 allows a first time adopter to deem the cost to be the carrying amount at the date of transition as determined under previous GAAP.	Where this exemption is applied, it is possible for an entity to previously have adopted a policy of fair valuing investments in associates at fair value through OCI and then on adoption to FRS 102, apply the cost model. On transition no adjustment would be required as the carrying amount would be the deemed cost. An adjustment what would be required under Section 29 would be the deferred tax effect of the difference between the carrying amount and the tax cost including indexation. An example of the deferred tax adjustments has been illustrated in Example 48 above.
Under old GAAP, no deferred tax was required to be recognised on unremitted earnings unless the joint venture had a constructive obligation/binding agreement to make a dividend payment.	Section 29 requires deferred tax to be recognised on the unremitted earnings of an associate. A timing difference arises as in the consolidated financial statements under the equity method, the income or loss for the parents share is recognised in the profit and loss account which then increases or decreases the value on the balance sheet. This income/loss is not taxable/tax deductible in the tax computation, but it may be taxable in the future when dividend is received from the joint venture, hence this creates the timing difference. Whether deferred tax should be recognised will depend on whether any dividend received from the joint venture will be taxable in the parent company’s books. Where the joint venture is an Irish company no tax will be payable and therefore no deferred tax needs to be recognised assuming the expected settlement will be from dividends received and not from a sale. Where it will be taxable then deferred tax will need to be recognised at the passive tax rate or where the investment is held for future sale the sales tax rate should be utilised. If this is the case a transition adjustment will need to be made on transition to FRS 102.	An adjustment will be required on transition where the dividends are deemed taxable in the hands of the entity. See attached an example of the calculation of this deferred tax (Example 51 – Initial Carrying Amount Of A Joint Venture Following Loss Of Control Of An Entity).
Not applicable.	The joint ventures individual financial statements will need to be restated to comply with FRS 102 which may result in a different net asset carrying amount than was previously determined under old GAAP. As a result, an adjustment will be required on transition to show the updated carrying amount for the change in net assets.	Where there are GAAP differences in the joint ventures financial statements, the consolidated financial statements will have to be updated on and since the date of transition such that the carrying amount in the consolidated financial statements is correct.
Where an interest is reduced such that it is no longer a joint venture; it would then be treated as either an associate or come within the remit of FRS 5, where it would be accounted for at cost.	Where an interest is reduced such that it is no longer a joint venture; under FRS 102 it is then accounted for as a financial asset and comes within the scope of Section 11 and Section 12 of the standard or Section 14 – Associates depending on what percentage remains. This would mean that the difference mentioned in Section 11, Section 12 and Section 14 come into play, where a reliable estimate of fair value can be determined.	Where joint control is lost and it then becomes an associate. Under old GAAP there was no option for the associate to be carried at fair value through the profit and loss, whereas under FRS 102 there is as long as it can be reliably measured in line with Section 11 rules. Where joint control is lost and it then becomes an investment with less than a significant influence, this investment should be carried at fair value through the profit and loss account (where it can be reliably measured if not possible then cost less impairment) which was not possible under old GAAP. This is a major difference. Please refer to Section 11 differences for guidance on the treatment of such an investment.
No such requirement.	Deferred tax will need to be measured on investments measured at fair value.	This is significant difference. Adjustments will be required on transition to reflect the deferred tax where a fair value model is chosen. An example of the deferred tax adjustments has been illustrated in Example 47 and 48 above.

Old GAAP

FRS 102

Further Comment On Differences

Joint Ventures

Investment in Joint Ventures (S.15)

There are two forms of joint ventures, namely:

· a joint arrangement; and

· a joint arrangement that is not an entity (structures with the form but not the substance of a joint venture).

There are three forms of joint ventures, namely:

· jointly controlled operations – These are effectively operations where equipment etc. is shared but ownership does not pass to another party. It is in fact not a legal entity;

· jointly controlled assets – These are effectively operations where venturers contribute equally towards the cost of one or more assets and they are owned jointly; and

· jointly controlled entities – These are joint ventures that involve the establishment of a corporation, partnership or other entity in which the venture has an interest and there is a contractual arrangement between the venturers establishing joint control over the economic activity.

Therefore, on adoption of FRS 102, companies will need to re-assess the contractual arrangements to assess what form of joint venture they fall into under Section 15.

Jointly controlled operations and jointly controlled assets (Section 15) is similar to joint arrangements that is not an entity (FRS 9). The accounting for these are the same.

Given that there are three types of joint ventures under FRS 102 and only two under old GAAP, on adoption of FRS 102, companies will need to re-assess the contractual arrangements to assess what form of joint venture they fall into under FRS 102.

Under old GAAP, there was a concept of JANEs. These were joint ventures where although the joint venture may have been a separate legal entity, in substance they were not and as a result under old GAAP the equity method of accounting was not required. Instead the results were included in the normal sales, purchases etc. of the venturer similar to jointly controlled assets and operations. However on transition, entities may find that some of these JANEs are in fact legal entities under Section 15. As they are legal entities it comes within the definition of a jointly controlled entity which should be accounted for under the equity method of accounting.

(Note: this adjustment only effects the consolidated financial statements and will not require a transition adjustment to be posted to reserves on the date of transition (instead it will effect comparative years results)). The parent entity financial statements are not affected as equity method accounting would not be used in those financial statements.

If this is the case in the comparative period, an adjustment will be required to account for this under the equity method. The net effect would be that the assets/liabilities currently shown within their respective balances on the balance sheet would now be transferred to an investment on the balance sheet. The profit for the comparative year would also be restated where by the sales, purchases etc relating to the JANE were moved from the respective revenue, cost of sales line etc to the one line ‘share of profit in joint venture’. See attached an example of how such a transition adjustment should be posted (Example 46 – JANE Reclassified As A Jointly Controlled Entity)

A joint venture in the separate financial statements is measured under either; the cost model or fair value model through the STRGL.

A joint venture in the separate financial statements is measured under either; the cost model, fair value model through the OCI or FVTPL. The FVTPL is an additional option under Section 15.

Where an entity adopts a model of fair valuing through the profit and loss account, an adjustment will be required on transition including the deferred tax impact. See attached an example detailing the journals required (Example 47 – Investments In Joint Ventures).

Where on transition, an entity adopts a policy of fair valuing through the OCI an adjustment will also be required on transition including the deferred tax impact. See attached an example detailing the journals required (Example 48 – Adoption Of Fair Value Through Profit And Loss On Transition).

Where an entity previously carried investment in associates at fair value through OCI and from then on deems this as its costs as allowed under Section 35(10) discussed below deferred tax will need to be recognised on same on transition.

The transition journals required are the same as those required where the previous valuation is taken as deemed cost. See attached example of same (Example 48 – Adoption Of Fair Value Through Profit And Loss On Transition).

Where an entity continues to adopt a cost model no transition adjustments are required.

In the consolidated financial statements, joint ventures which are JANE’s account for its share of the assets, liabilities and cash flows.

In the consolidated financial statements, joint ventures which are jointly controlled operations and jointly controlled assets account for its share of the assets, liabilities and cash flows.

No differences.

FRS 9 requires the continued recognition of losses, even if they exceed the cost of the investment which are shown as provisions.

Losses should be recognised until the carrying amount of the investment is reduced to nil and no further losses are recognised unless the entity has a legal or constructive obligation or has made payments on behalf of the joint venture (Section 14.9).

Given the difference here, where joint ventures are in a net liability position at the date of transition, an adjustment will be required to derecognise those losses/provisions previously recognised under old GAAP. (Note there is no impact on the individual financial statements as this would not have been applicable as the investment would have been measured at cost less impairment or fair value). See attached an example detailing the journals required (Example 49 – Derecognition Of Joint Ventures Losses).

For equity accounted results (i.e. joint arrangements), the share of turnover, operating profit of joint ventures must be shown separately on the face of the profit and loss with interest and tax related to joint ventures being presented alongside the interest and tax line items in the group profit and loss account i.e. Gross equity accounting is required.

For equity accounted results (i.e. jointly controlled entity), the share of the income of the joint venture is to be presented as one line, after the effects of interest and tax i.e. Gross equity accounting is not to be utilised.

This is a disclosure difference. Under FRS 102, the amount of turnover and operating profit attributable to joint ventures does not have to be disclosed, instead it can be included under the operating profit line (or alternatively after the profit on ordinary activities before tax) in the consolidated financial statements. See illustration of same in attached (Example 50 – Equity Method Profit and Loss Disclosure).

Old GAAP requires disclosure on the face of the balance sheet of the assets and liabilities of the associate.

(only applicable for consolidated financial statements).

The net figure need only be shown on the face of the balance sheet.

(only applicable for consolidated financial statements).

Section 15 provides less disclosure on the face of the balance sheet, however details of the movement in the investment in the joint venture should be shown in the notes similar to what was required under old GAAP.

Old GAAP requires the investment in associates and joint ventures to be shown separately on the face of the balance sheet:

(only applicable for consolidated financial statements).

This is not required under FRS 102:

(only applicable for consolidated financial statements).

Merely a disclosure requirement, no transition adjustment. The investment in the joint venture and associate can be shown as one-line item in the balance sheet.

Not applicable.

For individual entity financial statements the investment can be measured at cost or fair value. Section 35.10 allows a first time adopter to deem the cost to be the carrying amount at the date of transition as determined under previous GAAP.

Where this exemption is applied, it is possible for an entity to previously have adopted a policy of fair valuing investments in associates at fair value through OCI and then on adoption to FRS 102, apply the cost model. On transition no adjustment would be required as the carrying amount would be the deemed cost. An adjustment what would be required under Section 29 would be the deferred tax effect of the difference between the carrying amount and the tax cost including indexation. An example of the deferred tax adjustments has been illustrated in Example 48 above.

Under old GAAP, no deferred tax was required to be recognised on unremitted earnings unless the joint venture had a constructive obligation/binding agreement to make a dividend payment.

Section 29 requires deferred tax to be recognised on the unremitted earnings of an associate. A timing difference arises as in the consolidated financial statements under the equity method, the income or loss for the parents share is recognised in the profit and loss account which then increases or decreases the value on the balance sheet. This income/loss is not taxable/tax deductible in the tax computation, but it may be taxable in the future when dividend is received from the joint venture, hence this creates the timing difference. Whether deferred tax should be recognised will depend on whether any dividend received from the joint venture will be taxable in the parent company’s books. Where the joint venture is an Irish company no tax will be payable and therefore no deferred tax needs to be recognised assuming the expected settlement will be from dividends received and not from a sale.

Where it will be taxable then deferred tax will need to be recognised at the passive tax rate or where the investment is held for future sale the sales tax rate should be utilised. If this is the case a transition adjustment will need to be made on transition to FRS 102.

An adjustment will be required on transition where the dividends are deemed taxable in the hands of the entity. See attached an example of the calculation of this deferred tax (Example 51 – Initial Carrying Amount Of A Joint Venture Following Loss Of Control Of An Entity).

Not applicable.

The joint ventures individual financial statements will need to be restated to comply with FRS 102 which may result in a different net asset carrying amount than was previously determined under old GAAP. As a result, an adjustment will be required on transition to show the updated carrying amount for the change in net assets.

Where there are GAAP differences in the joint ventures financial statements, the consolidated financial statements will have to be updated on and since the date of transition such that the carrying amount in the consolidated financial statements is correct.

Where an interest is reduced such that it is no longer a joint venture; it would then be treated as either an associate or come within the remit of FRS 5, where it would be accounted for at cost.

Where an interest is reduced such that it is no longer a joint venture; under FRS 102 it is then accounted for as a financial asset and comes within the scope of Section 11 and Section 12 of the standard or Section 14 – Associates depending on what percentage remains. This would mean that the difference mentioned in Section 11, Section 12 and Section 14 come into play, where a reliable estimate of fair value can be determined.

Where joint control is lost and it then becomes an associate. Under old GAAP there was no option for the associate to be carried at fair value through the profit and loss, whereas under FRS 102 there is as long as it can be reliably measured in line with Section 11 rules.

Where joint control is lost and it then becomes an investment with less than a significant influence, this investment should be carried at fair value through the profit and loss account (where it can be reliably measured if not possible then cost less impairment) which was not possible under old GAAP. This is a major difference. Please refer to Section 11 differences for guidance on the treatment of such an investment.

No such requirement.

Deferred tax will need to be measured on investments measured at fair value.

This is significant difference. Adjustments will be required on transition to reflect the deferred tax where a fair value model is chosen.

An example of the deferred tax adjustments has been illustrated in Example 47 and 48 above.

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