Equity Method
38. As an alternative to proportionate consolidation described in paragraph 30, a venturer shall recognise its interest in a jointly controlled entity using the equity method.
39. A venturer recognises its interest in a jointly controlled entity using the equity method irrespective of whether it also has investments in subsidiaries or whether it describes its financial statements as consolidated financial statements.
40. Some venturers recognise their interests in jointly controlled entities using the equity method, as described in IAS 28. The use of the equity method is supported by those who argue that it is inappropriate to combine controlled items with jointly controlled items and by those who believe that venturers have significant influence, rather than joint control, in a jointly controlled entity. This Standard does not recommend the use of the equity method because proportionate consolidation better reflects the substance and economic reality of a venturer's interest in a jointly controlled entity, that is to say, control over the venturer's share of the future economic benefits. Nevertheless, this Standard permits the use of the equity method, as an alternative treatment, when recognising interests in jointly controlled entities.

41. A venturer shall discontinue the use of the equity method from the date on which it ceases to have joint control over, or have significant influence in, a jointly controlled entity.
Exceptions to Proportionate Consolidation and Equity Method
42. Interests in jointly controlled entities that are classified as held for sale in accordance with IFRS 5 shall be accounted for in accordance with that IFRS.
Editorial note: Substituted by IFRS 5 with effect for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. If an entity applies the IFRS for a period beginning before 1 January 2005, it shall disclose that fact. Previously "Interests in jointly controlled entities that meet the condition set out in paragraph 2(a) shall be classified as held for trading and accounted for in accordance with IAS 39.".
43. When an interest in a jointly controlled entity previously classified as held for sale no longer meets the criteria to be so classified, it shall be accounted for using proportionate consolidation or the equity method as from the date of its classification as held for sale. Financial statements for the periods since classification as held for sale shall be amended accordingly.
Editorial note: Substituted by IFRS 3 with effect for business combinations for which the agreement date is on or after 31 March 2004, subject to further transitional provisions. Previously "When, in accordance with paragraphs 2(a) and 42, an interest in a jointly controlled entity previously accounted for in accordance with IAS 39 is not disposed of within twelve months, it shall be accounted for using proportionate consolidation or the equity method as from the date of acquisition (see IAS 22 Business Combinations). Financial statements for the periods since acquisition shall be restated.".

Substituted by IFRS 5 with effect for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. If an entity applies the IFRS for a period beginning before 1 January 2005, it shall disclose that fact. Previously "When an interest in a jointly controlled entity previously classified as held for sale no longer meets the criteria to be so classified, it shall be accounted for using proportionate consolidation or the equity method as from the date of its classification as held for sale. Financial statements for the periods since classification as held for sale shall be restated.".

44. [...]
Editorial note: Deleted by IFRS 5 with effect for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. If an entity applies the IFRS for a period beginning before 1 January 2005, it shall disclose that fact. Previously "Exceptionally, a venturer may have found a buyer for an interest described in paragraph 2(a), but may not have completed the sale within twelve months of acquisition because of the need for approval by regulators or others. The venturer is not required to apply proportionate consolidation or the equity method to an interest in a jointly controlled entity if the sale is in process at the balance sheet date and there is no reason to believe that it will not be completed shortly after the balance sheet date.".
45. From the date on which a jointly controlled entity becomes a subsidiary of a venturer, the venturer shall account for its interest in accordance with IAS 27. From the date on which a jointly controlled entity becomes an associate of a venturer, the venturer shall account for its interest in accordance with IAS 28.
Separate Financial Statements of a Venturer

46. An interest in a jointly controlled entity shall be accounted for in a venturer's separate financial statements in accordance with paragraphs 37-42 of IAS 27.
47. This Standard does not mandate which entities produce separate financial statements available for public use.
Transactions between a Venturer and a Joint Venture
48. When a venturer contributes or sells assets to a joint venture, recognition of any portion of a gain or loss from the transaction shall 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 shall recognise only that portion of the gain or loss that is attributable to the interests of the other venturers.[1] The venturer shall recognise the full amount of any loss when the contribution or sale provides evidence of a reduction in the net realisable value of current assets or an impairment loss.
[1] See also SIC-13 Jointly Controlled Entities-Non-Monetary Contributions by Venturers.

49. When a venturer purchases assets from a joint venture, the venturer shall not recognise its share of the profits of the joint venture from the transaction until it resells the assets to an independent party. A venturer shall recognise its share of the losses resulting from these transactions in the same way as profits except that losses shall be recognised immediately when they represent a reduction in the net realisable value of current assets or an impairment loss.
50. To assess whether a transaction between a venturer and a joint venture provides evidence of impairment of an asset, the venturer determines the recoverable amount of the asset in accordance with IAS 36 Impairment of Assets. In determining value in use, the venturer estimates future cash flows from the asset on the basis of continuing use of the asset and its ultimate disposal by the joint venture.
Reporting Interests in Joint Ventures in the Financial Statements of an Investor
51. An investor in a joint venture that does not have joint control shall account for that investment in accordance with IAS 39 or, if it has significant influence in the joint venture, in accordance with IAS 28.
Operators of Joint Ventures

52. Operators or managers of a joint venture shall account for any fees in accordance with IAS 18 Revenue.
53. 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 fees are accounted for by the joint venture as an expense.
Disclosure
54. A venturer shall disclose the aggregate amount of the following contingent liabilities, unless the probability of loss is remote, separately from the amount of other contingent liabilities:
(a) any contingent liabilities that the venturer has incurred in relation to its interests in joint ventures and its share in each of the contingent liabilities that have been incurred jointly with other venturers;
(b) its share of the contingent liabilities of the joint ventures themselves for which it is contingently liable; and
(c) those contingent liabilities that arise because the venturer is contingently liable for the liabilities of the other venturers of a joint venture.

55. A venturer shall disclose the aggregate amount of the following commitments in respect of its interests in joint ventures separately from 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.
56. A venturer shall disclose a listing and description of interests in significant joint ventures and the proportion of ownership interest held in jointly controlled entities. A venturer that recognises its interests in jointly controlled entities using the line-by-line reporting format for proportionate consolidation or the equity method shall disclose the aggregate amounts of each of current assets, long-term assets, current liabilities, long-term liabilities, income and expenses related to its interests in joint ventures.
57. A venturer shall disclose the method it uses to recognise its interests in jointly controlled entities.

Effective Date
58. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that fact.
Withdrawal of IAS 31 (revised 2000)
59. This Standard supersedes IAS 31 Financial Reporting of Interests in Joint Ventures (revised in 2000).
Appendix: Amendments to Other Pronouncements
The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this Standard for an earlier period, these amendments shall be applied for that earlier period.
A1. SIC-13 Jointly Controlled Entities-Non-Monetary Contributions by Venturers is amended as described below.
The reference is amended to read as follows:
Reference: IAS 31 Interests in Joint Ventures
Paragraph 1 is amended to read as follows:
1. IAS 31.48 refers to both contributions and sales between a venturer and a joint venture as follows: "When a venturer contributes or sells assets to a joint venture, recognition of any portion of a gain or loss from the transaction shall reflect the substance of the transaction". In addition, IAS 31.24 says that "a jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has an interest." There is no explicit guidance on the recognition of gains and losses resulting from contributions of non-monetary assets to jointly controlled entities ("JCEs").
The SIC's Basis for Conclusions should be read as follows:
BASIS FOR CONCLUSIONS
[The original text has been marked up to reflect the revision of IAS 31 in 2003: new text is underlined and deleted text is struck through.]

8. IAS 31.4839 requires that, while the assets are retained in the joint venture, the venturer should recognise only that portion of the gain or loss which is attributable to the interests of the other venturers. Additional losses are recognised if required by IAS 31.4839.
9. IAS 31.4839 refers to the transfer of the "significant risks and rewards of ownership" as a condition for recognition of gains or losses resulting from transactions between venturers and joint ventures. IAS 18.16(a) to (d) contain examples of situations where the risks and rewards of ownership are typically not transferred. This guidance also applies by analogy to the recognition of gains or losses resulting from contributions of non-monetary assets to JCEs. Since the venturer participates in joint control of the JCE, it retains some "continuing managerial involvement" in the asset transferred. However, this does not generally preclude the recognition of gains or losses since joint control does not constitute control to the degree usually associated with ownership (IAS 18.14(b)).
A2. In International Financial Reporting Standards, including International Accounting Standards and Interpretations, applicable at December 2003, references to the current version of IAS 31 Financial Reporting of Interests in Joint Ventures are amended to IAS 31 Interests in Joint Ventures.

Approval of IAS 31 by the Board
International Accounting Standard 31 Interests in Joint Ventures was approved for issue by the fourteen members of the International Accounting Standards Board.
Sir David Tweedie Chairman
Thomas E Jones Vice-Chairman
Mary E Barth
Hans-Georg Bruns
Anthony T Cope
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O'Malley
Harry K Schmid
John T Smith
Geoffrey Whittington
Tatsumi Yamada