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On May2011 the IASB issued IFRS-11, (Joint Arrangements). IFRS-11 supersedes IAS31, (Interests in Joint Ventures) and it is effective for annual periods beginning on or after1 January2013. some joint arrangements that are accounted for using proportionate consolidation under IAS-31 will be accounted for using the equity method under IFRS11. This will result in recognizing a single line item for the investment and the reporting entity’s share of the joint arrangement’s profit or loss.
THE IMPACT OF IFRS–11 ( JOINT ARRANGEMENTS ) ON THE FINANCIAL STATEMENTS
Table a) Effects on financial statements of entities changing from proportionate consolidation to the equity method
Statement of financial position • Reported fi gures will decline to the extent of the entity’s previously recognised share in the individual assets and liabilities of the joint venture and therefore total assets and total liabilities will decrease.
• The investment in the joint venture will be captured in a single line items.
Statement of comprehensive income • Reported figures will decline to the extent of the entity’s previously recognised share revenue and expenses of the joint venture and therefore total revenue and total expenses will decrease.
• No changes in net income.
Statement of changes in equity• No changes in the statement of changes in equity.
Statement of cash flows • Reported operating, investing and financing cash flow figures will declineto the extent of the entity’s previously recognised share in the cash flows of the joint venture.
• Dividends received from joint ventures will be presented as cash flows.
Table b) Effect of the accounting change on return on capital and its components
Return on capital
(eg Net income/Shareholders’ equity) • The accounting change will not affect this ratio.
Profitability
(eg Net income/Revenue) • The removal of the proportionate share of revenue will cause profitability to increase
Total assets turnover
(eg Revenue/Assets) • The accounting change will cause reported revenue and total assets to be smaller. The final effect on this ratio will depend upon the absolute and relative changes of revenue and assets.
Financial leverage
(eg Net debt/Capital employed, Debt/Shareholders’ equity) • The removal of the entities’ proportionate share of debt will cause the leverage ratio to be smaller.
