Statements of Financial Accounting Standards No. 31

	Statements of Financial Accounting Standards In Taiwan

SFAS No. 31 Interests in Joint Ventures

Status

Revised by the Financial Accounting Standards Committee In Taiwan on 22 September 2005
　

Summary

The purpose of this Statement is to establish the accounting standards for venturers and investors in a joint venture. Joint venture in this Statement is the contractual arrangement whereby two or more parties undertake economic activities that are subject to joint control. Those activities that have no contractual arrangements are not within the scope of this Statement.

Joint control is defined as two or more entities share the control of economic activities of a joint venture through contractual arrangement. A venturer is a party that participates in a joint venture and has joint control over that joint venture. An investor is a party that participates in a joint venture, but does not have joint control over that joint venture.

The joint ventures specified in this Statement have the following three types:

(a)jointly controlled operations;

(b)jointly controlled assets; and,

(c)jointly controlled entities.

Jointly controlled operations

The jointly controlled operations involve the use of the venturers’ assets and other resources rather than establishing a corporation, partnership or any other form of entity. Each venturer uses its own properties, plant and equipment and holds its own inventory. It also assumes its own expenses and liabilities, and arranges its own financing. Jointly controlled operations may concur with the venturer’s own operations. The contractual arrangement usually specifies the allocation method for product revenues and common costs of joint production.

A joint venture of jointly controlled operation need not have independent accounting records and financial statements. However, a venturer may prepare its own management reports for the purpose of performance evaluation.

To present its interests in jointly controlled operations, a venturer should recognize the following items in its separate financial statements:

(a)the assets that it controls and the liabilities that it bears; and

(b)the revenue and expenses that it shares.

Jointly controlled assets

A venturer of jointly controlled assets contributes or acquires one or more assets as its

investment in the agreed-upon business operation. The venturers jointly control or own such

assets to obtain economic benefits. Each venturer shares the output and the expenses

according to the contractual arrangement. These joint ventures do not involve the

establishment of a corporation, partnership, or any other form of entity that is separate from

the venturers themselves.

The purpose of the accounting for jointly controlled assets is to reflect the economic

substance of the joint venture. Therefore, the joint venture accounting records for jointly

controlled assets may be limited to the regular expenses that are commonly shared by the

venturers. The joint venture need not have independent financial statements. However, a

venturer may prepare its own management reports for the purpose of performance evaluation.

To present its interests in jointly controlled assets, a venturer should recognize the following items in its separate financial statements:

(a) its share of jointly controlled assets, classified according to the nature of the assets

rather than as investments. For example, oil pipeline should be classified under fixed

assets;

(b) the liabilities which it has separately incurred. For example, the liabilities incurred to

purchase jointly controlled assets;

(d) the expenses which is has separately incurred. For example, the expenses incurred

related to the financing of jointly controlled assets purchased or to the sale of joint

venture products; and

(e) its share of common revenue and expenses incurred by the joint venture.

Jointly controlled entities

A jointly controlled entity is a joint venture whereby the venturers collectively establish a

corporation, partnership or any other form of entity. The difference between a jointly

controlled entity and an ordinary enterprise is that the venturers use a contractual

arrangement to establish joint control over the entity’s economic activity.

A jointly controlled entity must have independent accounting records.

The cash or other assets that a venturer contributes into a jointly controlled entity should be recognized as Investments. A venturer should use the equity method to account for such investments.

A venturer does not have to prepare consolidated financial statements to account for its interests in a jointly controlled entity. If the venturer elects to prepare consolidated financial statements, the proportionate consolidation method should be applied. When a venturer uses the proportionate consolidation method to prepare financial statements, it can either group by accounts or present separately by category.

When a venturer loses its joint control over a jointly controlled entity, use of the proportionate consolidation method should be discontinued.

If an investor only has significant influence but not joint control over the joint venture, the equity method should be applied; otherwise, the cost method should be applied.

This Statement also specifies disclosures about joint ventures.


	Effective date

This Statement becomes effective for financial statements for the fiscal year ending on and after December 31, 2001. Earlier adoption is allowed.

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