Septiembre 2011

Joint ventures

Joint ventures

Definition

An economic activity controlled jointly by two or more natural or legal persons through a statutory or contractual arrangement
whereby they agree to share the power to govern the financial and operating policies of an economic activity so as to obtain economic benefits.

Categories of joint venture

Jointly controlled operations and assets that are not independent legal entities, such as Spanish UTEs (unincorporated temporary joint ventures) and joint property entities:

• 
  Each venturer recognises in its balance sheet the share corresponding to it, in proportion to its ownership interest, of the assets and liabilities. Also, it recognises in the income statement its share of the income earned and expenses incurred by the joint venture.
  

• 
  Reciprocal results, assets, liabilities, income, expenses and cash flows must be eliminated.
  

Jointly controlled entities.

• 
  The venturer recognises its ownership interest in accordance with the provisions for equity investments in Group companies, jointly controlled entities and associates in the standard on financial instruments.
  

Transactions between Group companies

Transactions between Group companies

(amended by Royal Decree 1159/2010)

General rule

Transactions between Group companies are accounted for in accordance with the general rules. Accordingly, in general the items subject to the transaction are initially recognised at fair value.


If the price agreed upon in the transaction differs from fair value, the economic substance of the transaction must be analysed and the transaction must be accounted for in accordance therewith.

Specific rules

The specific rules only apply when the items subject to the transaction must be classified as a business. Accordingly, equity interests that give control over a company that constitutes a business also have this classification.

The specific rules govern three types of situations:

Non-monetary contributions:

The contributor measures its investment at the carrying amount of the assets and liabilities contributed in the consolidated financial statements prepared in accordance with the Rules for the Preparation of Consolidated Financial statements (NOFCAC). The acquirer recognises them for the same amount.