This article is for users who have joint operations within their group structure and need to apply the proportionate consolidation method in accordance with IFRS 11.
This guide covers:
How to set up Joint operations
- IFRS's definition of Joint operations
- How Konsolidator® differs between Joint ventures and Joint operations in the parent company
The quick 4-step setup
- What to do if you have an investment in a joint operation.
- How Konsolidator handles uploads and journals for joint operations.
- How elimination types and intercompany eliminations are handled.
This guide aims to give you a comprehensive and financially complex understanding of how Konsolidator® supports joint operations, calculates proportionate consolidation, and allows you to set up and manage joint operations directly within Konsolidator®.
BEFORE YOU START:
Check your user status: Only Standard or Administrator users can add a new company.
How to set up Joint operations
Konsolidator® distinguishes between two types of joint arrangements: joint ventures and joint operations (see IFRS definitions below). Therefore, you must choose ‘Joint operations’ in the company setup for the companies using a proportionate consolidation method.
If you have ‘Joint ventures,’ on the other hand, you should use ‘Associated companies’ in the company setup, as they use the same accounting method.
IFRS: Joint operations vs. Joint venture
According to IFRS, a joint operation is a joint arrangement in which the parties with joint control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement. This arrangement should, according to IFRS, use a proportionate consolidation method.
If the joint arrangement is a joint venture, then according to IFRS, the parties with joint control of the arrangement have rights to the arrangement's net assets. This arrangement should, according to IFRS, be recognized as an investment. It shall use the equity method and include this in one line in the consolidation.
How Konsolidator® differs between Joint ventures and Joint operations in the parent company
Joint operations and joint ventures should also be recognized differently in the parent company’s accounts. In the group accounts in Konsolidator®, there are no group accounts for “Joint operations”.
To accommodate, you should in the financial assets rename the group accounts for “Joint ventures” to “Joint operations”. This is because Konsolidator will be able to prepare a system elimination journal. Since “Joint ventures” has been replaced with “Joint operations” in Konsolidator®, you will need to rename the relevant group accounts:
- For a joint operation, use the group accounts originally labeled “Joint ventures” and rename them “Joint operations” in the financial assets.
- For a joint venture recognized as an associated company, use the group accounts called “Associated companies” in Konsolidator® in the financial assets.
The quick 4-step set-up
- Go to SETUP and click on group structure
- Click on the button +Add company
- In the drop-down, Recognize company as, select “Joint operation”
- Konsolidator® will automatically use the proportionate consolidation method.
What to do if you have an investment in a joint operation
In certain local GAAPs, it is possible to have an investment in a joint operation where the parent company recognizes the company as a joint control company. The company is then considered an investment but handled using a proportionate consolidation method.
When this is the case, the parent company should map the local accounts for the investment to the group accounts called “Joint operations,” as changed according to the section about differences between “Joint operations” and “Joint ventures”. When using this, the investment for the Joint operations should be handled as a cost investment in the parent company’s accounts and should be mapped to the renamed group accounts for correct handling of an elimination of an investment.
When recognizing the investment as a joint operation according to IFRS, where assets and liabilities are in joint control and not the net assets, then you should not use the group accounts called “Joint operations” as the investment is more like an intercompany receivable account and should be handled in an elimination type.
How Konsolidator handles uploads and journals for joint operations
When uploading to a company, where you have chosen proportionate consolidation, you should upload the entire trial balance for the company and prepare journals for the entire company.
As part of the Calculate and Post, Konsolidator® will prepare an additional system journal in the upload report. Konsolidator® proportionately adjusts the trial balance uploaded, including any adjusting and reclassification journal entries prepared, into what the group should include in the consolidation.
Note:
The system journal will not show in the journal tab but only in the upload report, as is the case with the result distribution journal.
Below is an example of this extra journal entry, which appears before the result distribution journal in the upload report.
How elimination types and intercompany eliminations are handled
When a joint operations company has transactions or balances with the parent or other entities within the group, Konsolidator® handles the intercompany elimination automatically, like this:
- The full amount uploaded from the parent (or other group entities) to intercompany accounts is used.
- Konsolidator® then proportionately eliminates the corresponding amount from the joint operation, based on its ownership percentage.
Example:
Let’s say the parent sells goods worth 15,000 to two joint operations:
- JO1 is 50% owned
- JO2 is 60% owned
Because these are joint operations, only 50% and 60% of the intercompany amounts, respectively, should be eliminated. This creates a difference since the parent reports the full 15,000, but the joint operations only include the relevant share in the elimination journal. Konsolidator® allows this difference to be automatically posted to an offset account, which you select in the elimination type settings.
Note
Konsolidator® assumes that the parent company's accounting and input are correct in all eliminations where joint operation companies are involved.
As you can see below, the offset account can be added for both the debit and the credit in the elimination journal type.
System elimination journal
If the parent company’s investment is considered according to net asset investment, Konsolidator can create a system elimination journal called “Elimination of investments in Joint operations,” which will eliminate the investment in the parent company and the share capital of the joint operations company. The elimination journal uses the group accounts regarding the renamed group accounts in the financial asset.
Need Assistance?
Contact support for any questions regarding the integration between Business Central and Konsolidator at support@konsolidator.com