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Numbers 24, 25 and 26 (Joint Arrangement classified as Joint Operation)

Entity A and Entity B incorporated Entity C to manufacture a microchip to be used by the

incorporating entities as component for their final products of cellular phones and tablets.

The contractual agreement of the incorporating entities provided that the decisions on relevant
activities of Entity C will require the unanimous consent of both entities.

Entity A and Entity B have rights to the assets, and obligations for the liabilities, relating to the
arrangement. The ordinary shares of Entity C will be owned by Entity A and Entity B in the ratio
of 60:40. At the end of first operation of Entity C, the financial statements provided the
following data:

Inventory 1,000,000 Accounts payable 2,000,000

Land 3,000,000 Note payable 1,000,000
Building 5,000,000 Loan payable 4,000,000
Share capital 1,000,000
Retained earnings 1,000,000
Sales revenue 5,000,000
The contractual agreement of Entity A and Entity B also provided for the following concerning
the assets and liabilities of Entity C:
 Entity A owns the land and incurs the loan payable of Entity C.
 Entity B owns the building and incurs the note payable of Entity C.
 The other assets and liabilities are owned or owed by Entity A and Entity B on the basis of
their capital interest in Entity C.
 The sales revenue of Entity C includes sales to Entity A and Entity B in the amount of
P1,000,000 and P2,000,000, respectively. As of the end of the first year, Entity A and Entity
B were able to resell 30% and 60% of the inventory coming from Entity C to third persons.

14. What is the amount of total assets to be reported by Entity A concerning its interest in Entity
C?
A. 5,400,000
B. 3,000,000
C. 3,600,000
D. 5,000,000

15. What is the amount of total liabilities to be reported by Entity B concerning its interest in
Entity C?
A. 1,800,000
B. 2,200,000
C. 2,800,000
D. 2,400,000

16. What is the amount of sales revenue to be reported by Entity A concerning its interest in
Entity C?
A. 2,300,000
B. 2,100,000
C. 3,000,000
D. 2,500,000

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Numbers 27 and 28 (Joint Arrangement classified as Joint Venture Equity Method)

On January 1, 2018, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C
which has its fiscal and operational autonomy. The contractual agreement of the incorporating
entities provided that the decisions on relevant activities of Entity C will require the unanimous
consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C.