STATEMENT OF SFAS No.

FINANCIAL ACCOUNTING STANDARD

12
INDONESIAN INSTITUTE OF ACCOUNTANTS
FINANCIAL REPORTING OF INTERESTS IN JOINTLY
CONTROLLED OPERATIONS AND ASSETS
FINANCIAL REPORTING OF INTERESTS IN JOINTLY CONTROLLED OPERATIONS AND ASSETS SFAS No. 12

Statement of Financial Accounting Standard (SFAS) No.12, Financial Reporting of Interests in

Jointly Controlled Operations and Assets, was adopted by a meeting of the Indonesian Accounting
Principles Committee on August 24, 1994 and was ratified by the Executive Committee of the
Association of Indonesian Accountants on September 7, 1994.

Compliance with the policies contained in this Statement is not obligatory in the case of immaterial
items.

Jakarta, September 7, 1994

Executive Committee
Association of Indonesian Accountants

Indonesian Accounting Principles Committee

Hans Kartikahadi Chairman

Jusuf Halim Secretary
Hein G. Surjaatmadja Member
Katjep K. Abdoelkadir Member
Wahjudi Prakarsa Member
Jan Hoesada Member
M. Ashadi Member
Mirza Mochtar Member
IPG. Ary Suta Member
Sobo Sitorus Member
Timoty Marnandus Member
Mirawati Soedjono Member
FINANCIAL REPORTING OF INTERESTS IN JOINTLY CONTROLLED OPERATIONS AND ASSETS SFAS No. 12

CONTENTS

parag
raphs

INTRODUCTION.....................................................................................................01-03
Objective
Scope.................................................................................................................01-02
Definitions...............................................................................................................03

EXPLANATION.......................................................................................................04-24
Contractual Arrangements..................................................................................05-08
Jointly Controlled Operations.............................................................................09-12
Jointly Controlled Assets....................................................................................13-17
Transactions Between a Venturer and a Joint Venture........................................18-19
Reporting Interests in Joint Ventures in Financial Statements of an Investor............20
Operators of Joint Ventures.....................................................................................21
Disclosure..........................................................................................................22-24

STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 12

FINANCIAL REPORTING OF INTERESTS IN JOINTLY CONTROLLED
OPERATIONS AND ASSETS ................................................................................25-36
Reporting Interests in Jointly Controlled Operations...........................................25-26
Reporting Interests in Jointly Controlled Assets.................................................. 27-28
Transactions Between a Venturer and a Joint Venture........................................29-30
Reporting Interests in Joint Ventures in Financial Statements of an Investor............31
Operation of Joint Ventures.....................................................................................32
Disclosure.......................................................................................................... 33-35
Effective Date.........................................................................................................36
FINANCIAL REPORTING OF INTERESTS IN JOINTLY CONTROLLED OPERATIONS AND ASSETS SFAS No. 12

INTRODUCTION

Objective

This Statement deals with accounting for interests in joint ventures and the reporting of
joint venture assets, liabilities, income and expenses in the financial statements of a venturer
and an investor.

Scope

01 This Statement governs the following:

(a) accounting treatment for interests in jointly controlled operations (JCO) and
reporting the joint income from a joint venture; and

(b) accounting treatment for interests in jointly controlled assets (JCA) and the reporting
of joint venture assets, liabilities, income and expenses.

02 This Statement does not govern the accounting treatment for the interest in jointly
controlled entities.

Definitions

03 The terms used in this Statement are defined as follows:

A joint venture is a contractual arrangement whereby two or more parties undertake

an economic activity which is subject to joint control.

Control is the power to govern the financial and operating policies of an economic
activity so as to obtain benefits from it.

Joint control is the contractually agreed sharing of control by each venturer over an
economic activity based on a contractual arrangement.

Significant influence is the power to participate in the financial and operating policy
decisions of an economic activity but is not control or joint control over those policies.

A venturer is a party to a joint venture and has joint control over that joint venture.

An investor in a joint venture is a party to a joint venture and does not have joint
control over that joint venture.

Proportionate consolidation is a method of accounting and financial reporting

whereby a venturers share of each of the assets, liabilities, income and expenses of a joint
venture is combined on a line-by-line basis with similar items in the venturers financial
statements.
FINANCIAL REPORTING OF INTERESTS IN JOINTLY CONTROLLED OPERATIONS AND ASSETS SFAS No. 12

The equity method is a method of accounting and financial reporting whereby an

interest in a jointly controlled entity initially recorded at cost and adjusted thereafter for the
post acquisition change in the venturers share of net assets of the jointly controlled entity.
The income statement reflects the venturers share of the results of operations of the jointly
controlled entity.

EXPLANATION

04 Joint Ventures take many different forms and structures. This Statement governs
only two broad types -- jointly controlled operations and jointly controlled assets -- which
are commonly described as, and meet the definition of, joint ventures. The following
characteristics are common to all joint ventures:

(a) two or more venturers are bound by a contractual arrangement; and

(b) the contractual arrangement establishes joint control.

Although a jointly controlled entity agrees with the definition of joint ventures, the
accounting treatment for venturers and investors party to a jointly controlled entity are
excluded in this Statement.

Contractual Arrangement

05 The existence of a contractual arrangement distinguishes joint ventures from an

investment in associates in which the investor has significant influence (see SFAS No.15,
Accounting for Investments in Associates). Activities which have no contractual
arrangement to establish joint control are not joint ventures for the purposes of this
Statement.

06 The contractual arrangement may be evidenced in a number of ways, for example,

by a contract between the venturers or minutes of discussions between the venturers.
Whatever its form, the contractual arrangement is usually in writing and deals with such
matters as:

(a) the activity, duration and reporting obligations of the joint venture;

(b) the appointment of the board of directors, or equivalent governing body of the joint
venture, and the voting rights of the venturers;

(c) capital contributions by the venturers; and

(d) the sharing by the venturers of the output, income, expenses or operating results of
the joint venture.

07 The contractual arrangement establishes joint control over the joint venture. Such a
requirement ensures that no single venturer is in a position to control the activity
unilaterally. The arrangement identifies those decisions in areas essential to the goals of the
FINANCIAL REPORTING OF INTERESTS IN JOINTLY CONTROLLED OPERATIONS AND ASSETS SFAS No. 12

joint venture which require the consent of all venturers and those decisions which may
require the consent of a specified majority of the venturers.

08 The contractual arrangement may identify one venturer as the operator or manager
of the joint venture. The operator does not control the joint venture but acts within the
financial and operating policies agreed to by the venturers in accordance with the
contractual arrangement.

Jointly Controlled Operations

09 Under a jointly controlled operations arrangement, the activities of joint ventures

involves the use of the assets and other resources of the venturers rather than from the
establishment of a corporation, partnership or other entity, or a financial structure that is
separate from the venturers themselves. Each venturer uses its own property, plant and
equipment and carries its own inventories. It also incurs its own expenses and liabilities and
raises its own finance, which represent its own obligations. The joint venture activities may
be carried out by the venturers employees alongside the venturers similar activities. The
joint venture agreement usually provides a means by which the revenue from the sale of the
joint product and any expenses incurred in common are shared among the venturers.

10 An example of a jointly controlled operation is when two or more venturers combine

their operations, resources and expertise in order to jointly manufacture, market and
distribute a particular product, such as an aircraft. Different parts of the manufacturing
process are carried out by each of the venturers. Each venturer bears its own cost and takes
a share of the revenue from the sale of the aircraft, such share being determined in
accordance with the contractual arrangement.

11 In respect of its interests in jointly controlled operations, each venturer includes the
following in its accounting records and financial statements:

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

(b) the expenses that it incurs and its share of the income that it earns from the sale of
goods or services by the joint venture.

12 A separate financial statement should be prepared for the joint venture if the amount
is material and the completion of a joint project is over a long period. The type, format, and
content of the financial statements depends on the venturers needs and the contractual
arrangement.

Jointly Controlled Assets

13 Under a jointly controlled assets arrangement, the venturers jointly controlled and
owned one or more assets contributed to, or acquired for the purpose of, the joint venture
and dedicated to the purposes of the joint venture. The assets are used to obtain benefits for
the venturers. Each venturer may take its share of the output from the assets and each bears
an agreed share of the expenses incurred.
FINANCIAL REPORTING OF INTERESTS IN JOINTLY CONTROLLED OPERATIONS AND ASSETS SFAS No. 12

14 These joint ventures do not involve the establishment of a corporation, partnership

or other entity, or a financial structure that is separate from the venturers themselves. Each
venturer has control over its share of future economic benefits through its share in the
jointly controlled asset.

15 Many activities in the oil, gas and mineral extraction industries involve jointly
controlled assets, for example, a number of oil production companies may jointly control
and operate an oil pipeline. Each venturer uses the pipeline to transport its own product in
return for which it bears an agreed proportion of the expenses of operating the pipeline.
Another example of a jointly controlled asset is when two enterprises jointly control a
property, each taking a share of the rents received and bearing a share of the expenses.

16 In respect of its interest in jointly controlled assets, each venturer includes the
following in its accounting records and financial statements:

(a) its share of the jointly controlled assets, classified according to the nature of the assets
rather than as an investment, for example, a share of a jointly controlled oil pipeline is
classified as fixed assets;

(b) any liabilities which it has incurred, such as a bank loan used for financing its interest
participation in a joint venture;

(c) its share of any liabilities incurred jointly with other venturers in relation to the joint
venture;

(d) any income from the sale or use of its share of the output of the joint venture,
together with its share of any expenses incurred by the joint venture; and

(e) any expenses which it has incurred in respect of its interest in the joint venture. For
example, those related to financing the venturers interest in the joint venture.

17 The accounting treatment of jointly controlled assets reflects the substance and
economic reality and, usually, the legal form of the joint venture. Separate accounting
records for the joint venture itself may be limited to those expenses incurred in common by
the venturers and ultimately borne by the venturers according to their agreed share. A
separate financial statement should be prepared for the joint venture if the amount is
material and the completion of a joint project is over a long period. The type, format and
content of the financial statement depends on the venturers needs and the contractual
arrangement.

Transactions Between a Venturer and a Joint Venture

18 When a venturer contributes or sells to a joint venture, recognition of any portion of

such a gain or loss depends on the substance of the transaction, in particular whether a
transaction has taken place. While the assets are retained by the joint venture, and provided
the venturer has transferred the significant risks and rewards of ownership, the venturer
recognizes only that portion of the gain attributable to the interests of the other venturers.
The venturer should, however, recognize the full amount of any loss when the contribution
FINANCIAL REPORTING OF INTERESTS IN JOINTLY CONTROLLED OPERATIONS AND ASSETS SFAS No. 12

or sale provides evidence of a reduction in the net realizable value of current assets or a
decline, other than temporary, in the carrying amount of long-term assets.

19 When a venturer purchases assets from a joint venture, the venturer should not
recognize its share of any gain or loss of the joint venture from the transaction until it resells
the assets to an independent party. A venturer immediately recognizes its share of the losses
resulting from these transactions when they represent a reduction in the net realizable value
of current assets or a decline, other than temporary, in the carrying amount of long-term
assets.

Reporting Interests in Joint Ventures in the Financial Statements of an Investor

20 The interest of an investor in a joint venture, which does not have joint control, is
reported in accordance with SFAS No.13, Accounting for Investments, or, if the investor
has significant influence in the joint venture, in accordance with SFAS No.15, Accounting
for Investments in Associates.

Operators of Joint Ventures

21 One or more venturers may act as the operator or manager of a joint venture.
Operators are usually paid a management fee for such duties. The management fees are
accounted for by the joint venture as an expense and are recognized in the operators
income statement in accordance with SFAS No. 23, Revenue Recognition.

Disclosure

22 A venturer discloses the aggregate amount of the following contingencies separately

from the amount of the venturers other contingencies:

(a) any contingencies that the venturer has incurred in relation to its interests in joint
ventures and its share of the contingencies which have been incurred jointly with
other venturers;

(b) its share of the contingencies of the joint venturers themselves for which it is liable;
and

(c) those contingencies that arise because the venturer is liable for the liabilities of the
other venturers of a joint venture.

23 A venturer discloses the aggregate amount of the following commitments separately

from the amount of the venturers other commitments:

(a) any capital commitments of the venturer in relation to its interests in joint ventures
and its share of the capital commitments that have been incurred jointly with other
venturers; and

(b) its share of the capital commitments of the joint ventures themselves.
FINANCIAL REPORTING OF INTERESTS IN JOINTLY CONTROLLED OPERATIONS AND ASSETS SFAS No. 12

24 In order that the users of the venturers financial statements may obtain a clear
understanding of its affairs, a venturer discloses a list and description of interests in
significant joint ventures.
FINANCIAL REPORTING OF INTERESTS IN JOINTLY CONTROLLED OPERATIONS AND ASSETS SFAS No. 12

STATEMENT OF FINANCIAL ACCOUNTING STANDARD NUMBER 12

FINANCIAL REPORTING OF INTERESTS IN JOINTLY

CONTROLLED OPERATIONS AND JOINTLY CONTROLLED
ASSETS

Statement of Financial Accounting Standard No. 12 consists of paragraphs 25-34.

This Statement should be read in the context of paragraphs 1-24.

Reporting Interest in Jointly Controlled Operations

25 In respect of its interests in jointly controlled operations, a venturer should

recognize and report in its financial statements:

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

(b) the expenses that it incurs and its share of income that it earns from the sale of goods
or services by the joint venture.

26 A separate financial statement should be prepared for the joint venture if the amount
is material and the completion of the joint project is over a long period. The type, format
and content of the financial statement depends on the venturers needs and the contractual
arrangement.

Reporting Interests in Jointly Controlled Assets

27 In respect to its interest in jointly controlled assets, a venturer should recognize and
report the following in its financial statements:

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

(b) any liabilities which it has incurred;

(c) its share of any liabilities incurred jointly with the other venturers in relation to the
joint venture;

(d) any income from the sale or use of its share of the output of the joint venture,
together with its share of any expenses incurred by the joint venture; and

(e) any expenses which it has incurred in respect of its interest in the joint venture.

When the application of the proportionate consolidation method above is not practicable,
the venturer can use the equity method for recording and reporting its interests in jointly
controlled assets.
FINANCIAL REPORTING OF INTERESTS IN JOINTLY CONTROLLED OPERATIONS AND ASSETS SFAS No. 12

28 A separate financial statement should be prepared for the joint venture if the amount
is material and the completion of a joint project is over a long period. The type, format and
content of the financial statement depends on the venturers needs and the contractual
arrangement.

Transactions between a Venturer and a Joint Venture

29 When a venturer contributes or sells assets to a joint venture, recognition of any

portion of a gain or loss from the transaction should reflect the substance of the transaction.
While the assets are retained by the joint venture, and provided the venturer has transferred
the significant risks and rewards of ownership, the venturer should recognize only that
portion of the gain which is attributable to the interests of the other venturers. The venturer
should recognize the full amount of any loss when the contribution or sale provides
evidence of a reduction in the net realizable value of current asset or a decline, other than
temporary, in the carrying amount of a long term asset.

30 When a venturer purchases assets from a joint venture, the venturer should not
recognize its share of any profit or loss from the transaction until it resells the assets to an
independent party. A venturer should recognize its share of the losses resulting from these
transactions immediately when they represent a reduction in the realizable value of current
assets or a decline, other than temporary, in the carrying amount of long term assets.

Reporting Interests in Joint Ventures in the Financial Statements of an Investor

31 An investor in a joint venture, which does not have joint control, should report its
interests in a joint venture in accordance with SFAS No.13, Accounting for Investments, or,
if it has significant influence in the joint venture, in accordance with SFAS No.15,
Accounting for Investments in Associates.

Operators of Joint Ventures

32 Operators or managers of a joint venture should account for any fees in accordance
with SFAS No. 23, Revenue Recognition.

Disclosure

33 A venturer should separately disclose the aggregate amount of the following

contingencies from the amount of the venturers other contingencies:

(a) any contingencies that the venturer has incurred in relation to its interests in joint
ventures and its share in each of the contingencies which have been incurred jointly
with other venturers;

(b) its share of the contingencies of the joint ventures themselves for which it is liable;
and

(c) those contingencies that arise because the venturer is liable for the liabilities of the
other venturers of a joint venture.
FINANCIAL REPORTING OF INTERESTS IN JOINTLY CONTROLLED OPERATIONS AND ASSETS SFAS No. 12

34 A venturer should separately disclose the aggregate amount of the following

commitments from the venturers other commitments:

(a) any capital commitments of the venturer in relation to its interests in joint ventures
and its share in the capital commitments that have been incurred jointly with other
venturers; and

(b) its share of the capital commitments of the joint ventures themselves.

35 In order to give the users of financial statements a clear understanding of a

venturers activities, a venturer should disclose a list and description of its significant
interests in joint ventures.

Effective Date

36 This Statement becomes effective for financial statements covering periods

beginning on or after January 1, 1995. Earlier application is encouraged.