Professional Documents
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03 Joint Arrangementsxx
03 Joint Arrangementsxx
Joint Arrangements
I. Introduction
PFRS 11 prescribes the accounting for a 'joint arrangement', which is defined as contractual
arrangement over which two or more parties have joint control. It is important that entities
understand the implications and interplay of both PFRS 10 and PFRS 11 to ensure the
proper assessment of, and accounting for, current and future joint arrangements.
Names can be misleading. Some agreements that are referred to as 'joint arrangements'
actually include arrangements whereby one party has control of an entity. In these
arrangements, the entity with control would consolidate it and the other parti^ would account
for their interest in that entity based on the nature of their investment. Other arrangements
may not be referred to as 'joint arrangements', but may still be joint arrangements, as
defined by PFRS 11. In other words, the name of the agreement is not important it only
matters whether it meets the definition of a joint arrangement, as set out in PFRS 11.
PFRS 11 notes that a contractual arrangement is often, but not always, in writing (although
we expect unwritten agreements to be rare in practice). Statutory mechanisms can create
enforceable arrangements, either on their own or in conjunction with contracts among the
parties. A contractual agreement may be incorporated in the articles, charter or by-laws of
the entity (or the 'separate vehicle' — a new term that is a broader concept than 'entity')
II. Definitions
Joint arrangement An arrangement of which two or more parties have joint control
Joint control The contractually agreed sharing of control of an arrangement, which
exists only when decisions about the relevant activities require the
unanimous consent of the parties sharing control
Joint operation A joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets, and obligations for the
liabilities, relating to the arrangement
Joint venture A joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement
Joint venture A party to a joint venture that has joint control of that joint venture
Party to a joint
arrangement An entity that participates in a joint arrangement, regardless of
whether that entity has joint control of the arrangement
Separate vehicle A separately identifiable financial structure, including separate legal
entities or entities recognized by statute, regardless of whether
those entities have a legal personality.
Joint control
Joint control is the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require the unanimous consent of the
parties sharing control.
Before assessing whether an entity has joint control over an arrangement, an entity first
assesses whether the parties, or a group of the parties, control the arrangement (in
accordance with the definition of control in PFRS 10 Consolidated Financial Statements).
After concluding that all the parties, or a group of the parties, controls the arrangement
collectively, an entity shall assess whether it has joint control of the arrangement. Joint control
exists only when decisions about the relevant activities require the unanimous consent of the
parties that collectively control the arrangement.
The requirement for unanimous consent means that any party with joint control of the
arrangement can prevent any of the other parties, or a group of the parties, from making
unilateral decisions (about the relevant activities) without its consent.
A joint arrangement is either a joint operation or a joint venture.
Regardless of the purpose, structure or form of the arrangement, the classification of joint
arrangements depends upon the parties' rights and obligations arising from the
arrangement.
A joint arrangement in which the assets and liabilities relating to the arrangement are held
in a separate vehicle can be either a joint venture or a joint operation.
A joint arrangement that is not structured through a separate vehicle is a joint operation.
In such cases, the contractual arrangement establishes the parties' rights to the assets,
and obligations for the liabilities, relating to the arrangement, and the parties' rights to the
corresponding revenues and obligations for the corresponding expenses.
An account called Joint Venture is maintained to take the place of all nominal accounts.
The following transactions that affect the account would be as follows:
Joint Venture
Merchandise contribution Merchandise withdrawals
Purchases Merchandise returns
Freight-in Purchase returns and
allowances
Sales returns and all. Purchase discounts
Sales discounts Sates
Expenses Other income
If Joint Venture is completed, the balance of the Joint Venture account represents the profit
or loss. Credit balance represents profit and a debit balance represents loss.
If Joint Venture is uncompleted, meaning there are still unsold merchandise, profit or loss
is a balancing figure between the balance of the Joint Venture account before profit
distribution and the cost of the unsold merchandise (the required debit balance of the Joint
Venture account after profit or loss distribution.)
III. Cash Settlement
Cash settlement may also be represented by the venturer's account balance after recording
investments, withdrawals, and share in venture gain. A debit balance represents cash to be
paid in final settlement while a credit balance represents cash to be received. The recording
of cash settlement on the books of each venturer requires that:
1. All accounts, except personal accounts, be brought to zero balance and
2. Any unaccounted debit or credit is cash to be received or paid
To make cash settlement to venturers upon termination of a completed venture. Cash
settlement to a venturer may be computed as follows:
Investments Pxx
Add: Share in venture gain xx
Total Pxx
Less: Withdrawals xx
Cash settlement Pxx
C. Joint Ventures
A joint venturer recognizes its interest in a joint venture as an investment and shall account
for that investment using the equity method in accordance with PAS 28 Investments in
Associates and Joint Ventures unless the entity is exempted from applying the equity
method as specified in that standard.
A party that participates in, but does not have joint control of, a joint venture accounts for its
interest in the arrangement in accordance with PFRS 9 Financial Instruments unless it has
significant influence over the joint venture, in which case it accounts for it in accordance with
PAS 28 (as amended in 2011).
MCQ - Theory
1. It is the contractually agreed sharing of control over an economic activity, and exists only when
the strategic financial and operating decisions relating to the activity require the unanimous
consent of the parties sharing control.
a. Control c. significant influence
b. Joint control d. Controlling interest Punzalan 2014
2. Joint ventures can take many forms and structures. Joint ventures may be created as
partnership, as corporations, or as unincorporated associations. All of the following are the
distinct types of joint venture, except
a. Jointly controlled interests. c. Jointly controlled operations.
b. Jointly controlled entities. d. Jointly controlled assets Punzalan 2014
.
3. It is a form of joint venture, where each venturer should recognize in its separate financial
statements all assets of the venture that it controls, all liabilities that is incurs, all expenses that
it incurs, and its share of any revenues produced by the venture.
a. Jointly controlled interests. c. Jointly controlled operations.
b. Jointly controlled entities. d. Jointly controlled assets Punzalan 2014
4. It is a party to a joint venture and does not have joint control over that joint venture.
a. Venturer.
b. Investor in a joint venture.
c. Investor with a power to govern the financial and operating policies.
d. None of these. Punzalan 2014
6. Which of the following statements about PAS 31, Interests in joint ventures is incorrect?
a. PAS 31 requires proportionate consolidation or the equity method to be applied when an
interest in a joint venture is acquired and held with a view to its disposal within 12
months of acquisition.
b. PAS 31 does not apply to investments that would otherwise be interests of venturers in
jointly controlled entities held by venture capital organization, mutual funds, unit’s trusts
and similar entities when those investments are classified as held for trading.
c. PAS 31 provides exemption from application of proportionate consolidation or the equity
method similar to those provided for certain parents not to prepare consolidated financial
statements.
d. PAS 31 provides that joint control must be lost before proportionate consolidation or the
equity method ceases to apply. Punzalan 2014
7. Which of the following methods of accounting for its share of each of the joint venture's assets
and liabilities are available to a venturer in a jointly controlled entity?
1. The equity method.
2. Proportionate consolidation, combining its share of each with similar items it controls.
3. Proportionate consolidation, showing separate line items for its share of each.
a. Methods 2 and 3 only c. Methods 1 and 2 only
b. Methods 1 and 3 only d. Methods 1,2, and 3 Punzalan 2014
8. The Flame Co. and the Tall Co. owns 60% and 40%, respectively of the equity of the Loop Co.
Flame and Tall have signed an agreement whereby all the strategic decisions in respect of
Loop are to be taken with the agreement of them both. Are the following statements TRUE or
FALSE, according to IAS 27, Consolidated and Separate Financial Statements, IAS 28,
Investment in Associates and IAS 31, Interest in Joint Ventures?
1. Flame should classify its investment in Loop as an investment in a subsidiary.
2. Tall should classify its investment in Loop as an investment in an associate.
Statement 1 Statement 2
a. False False
b. False True
c. True False
d. True True Punzalan 2014
9. Are the following statements in respect of the conditions for joint venture TRUE or FALSE,
according to IAS 31, Interest in Joint Ventures?
1. The venturers must have a contractual arrangement as to how strategic decisions in
respect of a joint venture are to be made
2. Majority voting is acceptable for strategic decisions in respect of a joint venture.
Statement 1 Statement 2
a. False False
b. False True
c. True False
d. True True Punzalan 2014
10. The Wind Co. has correctly classified its investment in Air Co. as an investment in a joint
venmre. Wind's statement of financial position shows debt of P500,000; Air's statement of
financial position shows debt of P700,000. Are the following statements TRUE or FALSE,
according to IAS 31, Interest in Joint Ventures?
1. Retained earnings in Wind's consolidated statement of financial position will be the
same, whether Wind uses proportionate consolidation or the equity method to account
for its interest in Air.
2. Debt in Wind's consolidated statement of financial position will be the same, whether
Wind uses proportionate consolidation or the equity method to account its interest in Air.
Statement 1 Statement 2
a. False False
b. False True
c. True False
d. True True Punzalan 2014
MCQ – Problems
JOINT ARRANGEMENT
Investment Account
11. On January 1, 2013, Wilkins, Inc. and Xylo, Inc. (the parties) agreed to combine their
businesses by establishing a separate vehicle (Bremm, Inc.). Both parties expect the
arrangement to benefit them in different ways. Wilkins believes that the arrangement could
enable it to achieve its strategic plans to increase its size, offering an opportunity to exploit its
full potential for organic growth through an enlarged offering of products and services. Xylo
expects the arrangement to reinforce its business opportunities by marketing more products.
As a result, Wilkins, Inc. acquired 207o of the outstanding common stock of Bremm, Inc. for
P700,000. This investment gave Wilkins the joint control over Bremm. Bremm's assets on that
date were recorded at P3,900,000 with liabilities of P900,000. Any excess of cost over book
value of the investment was attributed to patent having a remaining useful life of 10 years.
In 2013, Bremm reported net income of P170,000. In 2014, Bremm reported net income of
P210,000. Dividends of P70,000 were paid in each of these two years. What is the equity
method balance of Wilkin's Investment in Bremm, Inc. at December 31,2014?
a. P728,000 c. P756,000
b. P748,000 d. P776,000 Dayag 2013
12. On January 1, 2013, two real estate companies (the parties - Packet Company and Socket
Company) set up a separate vehicle (Harrison Company) for the purpose of acquiring and
operating a shopping centre. The contractual arrangement between the parties establishes
joint control of the activities that are conducted in Harrison Company. The main feature of
Harrison's legal form is that the entity, not the parties, has rights to the assets, and
obligations for the liabilities, relating to the arrangement. These activities include the rental of
the retail units, managing the car park, maintaining the centre and its equipment, such as lifts,
and building the reputation and customer base for the centre as a whole.
As a result, Packet Company paid P1.6 million for 50,000 shares of Harrison's voting
common stock, which represents a 40% investment. No allocation to goodwill or other
specific account was made. The joint control over Harrison is achieved by this acquisition
and so Packet applies the equity method. Harrison distributed a dividend of P2 per share
during the year and reported net income of P560,000.
What is the balance in the Investment in Harrison account found in Packet's financial
records as of December 31,2013?
a. P1,724,000 c. P1,844,000
b. P1,784,000 d. P1,884,000 Dayag 2013
13. January 1, 2013 entities X and Y each acquired 30 per cent of the ordinary shares that carry
voting rights at a general meeting of shareholders of entity O for P300,000. Acquisition-related
costs, such as broker and legal fees paid amounts to P50,000 by entity X. Entities X and Y
immediately agreed to share control over entity O.
For the year ended December 31,2013 entity O recognized a profit of P400.000. On December
30,2013 entity O declared and paid a dividend of P150,000 for the year 2013. At December
31,2013 the fair value of each venturer's investment in entity O is P425,000. However, there is
no published price quotation for entity O.
In 2013 entity X purchased goods for P100,000 from entity O. At December 31, 2013 P60,000
of the goods purchased from entity O were in entity X's inventories (ie they had not been sold
by entity X). Entity O sells at a 50 per cent mark-up on cost.
Entities X and Y account for its investment in entity O using the equity method. At December
31,2013 entity X would report its investment in entity O at:
a. P469.000 c. P419,000
b. P369,000 d. P375,000 Guerrero 2013
14. On January 1, 2013 entities M and N each acquired 30 per cent of the ordinary shares that
carry voting rights at a general meeting of shareholders of entity Z for P300,000. Contingent
consideration probable to be paid by entity M is measured reliably at P50,000. Entities M and
N immediately agreed to share control over entity Z.
For the year ended December 31,2013 entity Z recognized a profit of P400,000. On December
30,2013 entity Z declared and paid a dividend of PI 50,000 for the year 2013. At December
31,2013 the fair value of each venturers' investment in entity Z is P425,000. However, there is
no published price quotation for entity Z.
On December 31,2013 entity M sells goods for P60,000 to entity Z. At December 31,2013 this
goods were in the investories of Equity Z (ie they had not been sold by entity Z). Entity M sells
goods at a 50 per cent mark-up on cost. Entities M and N account for its investment in entity Z
using the equity method.
15. On January 1,2013 entities A and B (the venturers) form a joint venture (entity X). Upon
incorporation of entity X, entities A and B each take up 50 per cent of the share capital of entity
X. In return for their interests in entity X entities A and B each contribute P100,000 to entity X.
Entity A contributes machine with a fair value of P100,000 and a carrying amount of P80,000.
Entity B's contribution is P100,000 cash.
The machine contributed by entity A has an estimated useful life of 10 years with no residual
value. Entity X's profit for the year ended December 31,2013 is P30,000 (after deducting
depreciation expense of P10,000 on the machine contributed by entity A). Entity A accounts
for his investment using the equity method.
16. On March 1,2013 entities A and B each acquired 30 per cent of the ordinary shares that carry
voting rights at a general meeting of shareholders of entity Z for P300,000. Entities A and B
immediately agreed to share control over entity Z.
On December 31,2013 entity Z declared a dividend of P100,000 for the year 2013. Entity Z
reported a profit of P60,000 for the year ended December 31, 2013. At December 31,2013 the
recoverable amount of each venturer's investment in entity Z is P292,000 (fair value of
P295,000 less costs to sell of P3,000). Entities A and B uses the equity method to account for
its investment in entity Z. However, there is no published price quotation for entity Z.
On December 31,2013, entities A and B must each report its investment in entity Z at:
a. P285,000 c. P288,000
b. P290,000 d. P260,000 Guerrero 2013
Trade Receivable
17 The PLDT Group comprises the Smart Co. and its 75% owned subsidiary, Ka-
Talk Co. The PLDT Group also owns one-third of the equity of the Ka-Text Co. and has signed
a contract with other equity holders in Ka-Text Co., whereby all strategic financial and operating
decisions in respect of Text n Text require the unanimous consent of all shareholders.
The PLDT uses proportionate consolidation to account for jointly controlled entities. 1 he
carrying amounts of trade receivables in the separate financial statements of these companies
at December 31, 2008 are:
PLDT Co. 800,000
Ka-Talk Co. 500,000
Ka-Text Co. 300,000
In accordance with IAS 27, Consolidated and Separate Financial Statements, and IAS 31,
Interest in Joint Ventures, what carrying amount of trade receivables should be presented in
the consolidated financial statements of PLDT Co.?
a. 1,275,000 c. 1,400,000
b. 1,300,000 d. 1,600,000 Punzalan 2014
Venture Profit(Loss)
19. Pinoy and Big Brother formed a joint venture to sell second hand home appliances by investing
sufficient cash. They agreed to share profits and losses equally. They agreed to operate for a
period of one year, each will record his purchases, sales, and expenses in his own books. After
almost six months of operations, the following incomplete information was made available:
Pinoy Big Brother
Joint venture account (Cr.) 60,000 120,000
Expenses paid 5,000 10,000
Unsold merchandise on hand 15,000 35,000
How much is joint venture profit?
a. 230,000 c. 165,000
b. 195,000 d. 130,000 Punzalan 2014
20. X is the manager of the joint venture of X, Y, and Z, which they decided to liquidate. Before
dissolution and liquidation, the following accounts appear in the books ofX:
Debit Credit
Joint venture 5,000
Participant Y 12,000
Participant Z 4,000
All the remaining merchandise and supplies of the joint venture were bought and paid by X
for P11,000. The resulting profits or losses were shared equally by the participants. What
were the joint venture's profits (losses)?
a. (5,000) c. (6,000)
b. 11,000 d. 6,000 Punzalan 2014
Net Income
21. OO, PP, and QQ formed joint operations to bankroll a series of cultural shows for the
Philippine Centennial celebration. OO and PP agreed to contribute cash and QQ was to
manage the affairs of the joint venture. QQ was to receive a bonus of 25% of the net income
after bonus, OO and PP were to be allowed interest on their capital contributions at 6% per
annum, and any remainder was to be divided equally among the three partners. After a year,
the joint operations was terminated and the following information was provided: original
capital contributions used to purchase tickets, were P1,815,000 and P2,475,000,
respectively, from OO and PP; QQ sold tickets worth a total of P6,600,000; and, QQ paid
expenses of P1,899,150 out of joint operations funds. How much was the joint operations net
income after the bonus to QQ?
a. 257,400 c. 410,850
b. 328,680 d. 4,700,850 Dayag 2013
Share in Net Income
22. RR and SS are asked by the ABC to handle the marketing of a benefit basketball game.
Being avid fans, they readily accepted the offer and formed joint operations. To achieve an
equitable distribution of earnings, they agreed that the partner who finances the purchase of
tickets shall be entitled to a 20% commission, the partner who makes ticket sales shall be
entitled to a 25% commission, and any remainder was to be divided equally. After the game
was over, the following information was obtained: RR purchased tickets worth P26J25; SS,
advanced P4.125 for expenses; and, ticket sales made by RR and SS, respectively, were
P22,000 and P16,500. How much was SS's share in the net income (loss) of the joint
operations?
a. 825 c. (3,300)
b. 4,125 d. (7,425) Dayag 2013
26. V, I and P form a joint operation for the sale of merchandise. P are to contribute the
merchandise, while V is to act as the managing joint operator and I to be allowed a bonus of
25% of the profit after deduction of the bonus as expense. I and P are to be allowed 6%
interest a year on their original investments. The balance of the profit on the arrangement is
to be divided equally among the three joint operators.
On July 1, 2013,1 and P contributed merchandise of P06.OOO and P90.0QD,
respectively. For the period between July 1 and October 1, V sold joint operation's
merchandise on account for P240,000, of which he collected P229,500, allowed sales
discounts of P4,050, and wrote off P6,450 as uncollectible. V paid joint operations
expenses of P58.560 from the joint operations cash. On October 1, the joint operations
was terminated and unsold merchandise was returned at the following values: to I.
P15,000, and to P, P11,400. Cash settlement was completed by V on the same day.
The cash settlement received by I and P, respectively, are Dayag 2013
a. 62,234.00 and P90,194.00 c. 72,333.33 and 92,166.67
b. 62,666.67and P90.333.33 d. 73,468.00and 101,788.00
27. The books of three joint operators contain the following account balances.
When P makes final settlement of the arrangements, the entries are: Dayag 2013
N's Books O's Books P's Books
a. Debit... P P5,000 N P5.000 Cash .... P5,000
Credit.. 0 3,000 P 2,000 N 2,000
Cash 2,000 Cash 3,000 0 3,000
b. Debit... Cash ........................ P3,000 Cash . P2,000 N P3.000
0 2,000 N 3,000 0 2,000
Credit.. P 5,000 P 5,000 Cash .. 5,000
c. Debit... P P5,000 N P5,000 Cash . P5,000
Credit.. Cash ....................... 3,000 P 3,000 N 3,000
0 2,000 Cash ..... 2,000 0 2,000
d. Debit... Cash ...................... P2,000 N P2,000 N P2,000
0 3,000 Cash 3,000 0 3,000
Credit.. P 5,000 P 5,000 Cash .. 5,000
28. LL, MM and NN formed a joint arrangement to purchase a piece of lot and to erect an
apartment building for sale. LL is to manage the joint arrangement hence, he will receive a
bonus of 10% of the joint operation's gain before deducting the bonus as an expense. Any
remaining gain or loss is to be divided equally among the joint operators. The venture is
completed on August 31,2013. On this date, the accounts of MM and NN show the following
balances:
Books of
MM NN
Account with LL P16,000 Cr. P16,000 Cr.
Account with MM 32,000 Cr.
Account with NN 18,000 Dr.
There are unused construction supplies which LL agreed to take over at its cost of P42,000.
Final settlement with the arrangement will require payments as follows:
a. LL pays NN P11,200, and MM pays NN P14,000.
b. LLpays NN P25,600,and MM P14,4O0.
c. LL pays MM P14,400, and NN pays LL P30,800.
d. LL pays MM P35,600, and NN pays LL P14,400. Dayag 2013
29. Reyes, Silva and Tan formed a joint arrangement. Reyes was designated as the managing
joint operator and was to record the joint operation's transactions in his own books. As
manager, Reyes was to be allowed a salary of P12,000; the remaining profit or loss was to be
divided equally.
The following balances appeared at the end of 2013, before adjustment for joint operations
inventory and profit:
Debit Credit
Joint operations cash P48.000 P
Joint operations - 15,000
Silva, capital 1,000
Tan, capital 27,000
The arrangement was terminated on December 31, 2013 and unsold merchandise costing
P10,500 were taken over by Tan. Reyes made cash settlement with Silva and Tan.
In the final cash settlement, how much did Tan receive?
a. 31,500 c. 21,000
b. 27,000 d. 10,500 Dayag 2013
Capitalizing on alleged inside information, Dupe and Fluke formed a partnership venture to'
purchase, sells or otherwise trade-in Bre-X mining shares. Bre-X recently made a significant finding
of gold deposits in its property in Busang, Indonesia. They started cautiously by making an initial but
modest cash contribution of P137,500,000 each. They agree to divide earnings equally and further
agreed to settle and close the partnership venture after six months of furious but ferocious (insider)
trading. Below is a synopsis of the transactions for six months:
Purchases of shares:
By Dupe 1,237,500,000
By Fluke 495,000,000
Sales of shares:
By Dupe 1,339,250,000
By Fluke 462,000,000
Interest charges:
By Dupe 2,200,000
By Fluke 1,375,000
Dividend Income:
By Dupe 1,100,000
By Fluke 2,750,000
30. How much will Fluke receive (or pay) in final settlement of the partnership venture?
a. (34,512,500) c. (31,625,000)
b. 2,887,500 d. 66,137,500 Punzalan 2014
Comprehensive
Questions 1 & 2 are based on the following: Dayag 2013
31. Ace Company purchases 40% of Basket Company on January 1 for P500,000 that carry
voting rights at a general meeting of shareholders of Basket Company. Ace Company and
Blake Company immediately agreed to share control (wherein unanimous consent is needed
to all the parties involved) over Basket Company. Basket reports assets on that date of
P1,400,000 with liabilities of P500,000. One building with a seven-year life is undervalued on
Basket's books by P140,000. Also Basket's book value for its trademark (10-year life) is
undervalued by P210,000. During the year. Basket reports net income of P90,000, while
paying dividends of P30,000. What is the Investment in Basket Company balance (equity
method) in Ace's financial records as of December 31?
a. P504,O00 c. P513,900
b. P507,600 d. P516,000
32. Using the same information in No. 31, the Income from Investment in Basket
Company in Ace's financial records as of December 31 ?
a. P36,000 c. P12,000
b. P19,600 d. P7,600
34. Using the same information in No. 33, except that Goldman Company's ownership structure
is as follows:
75% is needed to direct relevant activities;
50% ownership of Wallace Company;
30% ownership of Zimmerman Company; and
20% ownership of American Company
What is the amount of Income from the Income from Investment in Goldman's Company in
Wallace financial records as of December 31?
a. P168,000 c. P60,000
b. P108,000 d. P56,000
35. Using the same information in No. 34, except that Goldman Company's ownership structure
is as follows:
75% is needed to direct relevant activities;
50% ownership of Wallace Company;
25% ownership of Zimmerman Company; and
25% ownership of American Company
What is the amount of Income from the Income from Investment in Goldman's Company in
Wallace financial records as of December 31?
a. P168,000 c. P 60,000
b. P108,000 d. P56,00O
36. Using the same information in No. 34, except that Goldman Company's ownership structure
is as follows:
Majority vote to direct relevant activities; 35% ownership of
Wallace Company; 35% ownership of Zimmerman Company;
Not applicable - ownership of American Company; and Widely
dispersed - other companies
What is the amount of Income from the Income from Investment in Goldman's Company in
Wallace financial records as of December 31 ?
a. P168,000 c. P60,000
b. P108,000 d. P56,000
38. Assuming the arrangement is ended on December 31, the share of Roxas in the loss of the
arrangement would be:
a. P10.130 c. P13.130
b. 11,130 d. 12,130
39. If a distribution of proceeds is made on December 31. The share of Silverio would amount to:
a. P374,650 c. P381,450
b. 378,500 d. 385,300
40. Tan's loss on the disposition on his Investment in Golden Copper is:
a. 95,420 c. 105,420
b. 95,140 d. 120,140
42. Using the same information in No. 41, the amount due to (from) joint operators:
a. Bar, P415; Car, P(415) c. Bar, P645; Car, P645
b. Bar, P420; Car, P(420) d. Bar, P-0-; Car, P-0-
Debit Credit
Joint Operation Cash P12,000
Joint Operation 6,500
N, Capital* P14,500
O, Capital 6,500
The balance of joint operation assets on hand is sold by M for P3,500. M is allowed special
compensation of P300 for winding up the arrangements; remaining profits or loss is
distributed equally.
The Joint Operations profit (loss) is:
a. 3,000 c. (3,000)
b. 10,000 d. Zero
44. Using the same information in No. 43, N and O received in final settlement:
a. N, P13,400; O,P5,400 c. N, P15,850; O,P7,850
b. N, P10,500; O,P3,500 d. None
Questions 1 & 2 are based on the following: Dayag 2013
45. McKee and Nelson enter into a contract to speculate on the stock market, each using
approximately their personal cash. The earnings are to be divided equally, and settlement is
to be made at the end of the year after all securities have been sold. A summary of the
monthly brokerage statements for the year follows:
McKee Nelson
Total of all purchase confirmations P45,000 P18,000
Total of all sales confirmations 48,700 16,800
Interest charged on margin accounts. 80 50
Dividends credited to accounts 40 100
The joint operation profit (loss) is:
a. 2,510 c. (3,370)
b. 2,640 d. None
46. Using the same information in No. 45, final settlement will require payments as follows:
a. McKee pays Nelson P2,405.
b. McKee and Nelson receive P1,255 each.
c. McKee receives from Nelson P1,150.
d. None.
Questions 1 & 2 are based on the following: Dayag 2013
47. Al Benin and Rey Sucat formed a joint operation on January 1,2013 to operate two stores to
be managed by each joint operator. They agreed to contribute cash as follows: Benin,
P30,000; Sucat, P20,000.
Profits and losses are to be divided in the capital ratio. All the arrangements transactions are
for cash, and the cash receipts and disbursements of the arrangements during the four-month
period, handled through the joint operator bank accounts, are as follows:
Benin Sucat
Receipts P78,920 P65,425
Disbursements 62,275 70,695
On April 30, 2013, the remaining joint operation non-cash assets in the hands of the joint
operators were sold for P 60,000 cash. The joint operations were terminated and
settlement was made between Benin and Sucat. The arrangement profit (loss) for the four-
month period, after selling the remaining non-cash assets, was:
a. 11,375 c. (31,375)
b. 21,375 d. (38,625)
48. Using the same information in No. 47, the P60,000 cash was divided between the join
operators in the following manner:
a. Benin, P16,180; Sucat, P43.820
b. Benin, P21,905; Sucat, P38,095
c. Benin, P26,180; Sucat, P33,820
d. Benin, P48,095; Sucat, P11,905
Debit Credit
Joint operations cash P48,000
Silva, capital 3,000
Torre, capital P27,000
The arrangements is to terminate on December 31, 2013 with unsold merchandise costing
P10,400.
Assuming that the joint operations profit is P5,000, what is the balance of the Joint
Operation's account before the distribution of profit?
a. 6,400 (Credit) c. 19,000 (Debit)
b. 5,400 {Debit) d. 15,400 (Debit)
50. Using the same information in No. 49 and assuming that the joint operations incurs a loss of
P1,000, what is the balance of the joint operation's account before the distribution of loss?
a. 9,400 (Debit) c. 11,400 (Debit)
b. 9,400 (Credit) d. 11,400 (Credit)
52. Using the same information in No. 51 Alas would receive in the final settlement:
a. 2,000 c. 4,000
b. 18,600 d. 38,000
The profit (loss) of the joint arrangement for the month of April, 2013 is:
a. P1,820 c. P( 1,700)
b. 1,950 d. None
56. Using the same information in No. 55, the account of Santo in the books of Ranto shows a
debit (credit) balance on April 30, 2013 after recognizing the profit (loss) on the uncompleted
joint arrangement:
a. P(10,910) c. P10,850
b. 10,975 d. Zero
60. Using the same information in No.59, how much of each joint operations receive in the final
settlement?
a. A - none B-P11,412; C-P14,568.
b. A-P4.545 B-P11,212; C-P10,932.
c. A-P5,070 B-P11,212; C-P10,932.
d. A-P4,545 B-P11,412; C-P14,568.
66. In the distribution of the net profit of the venture, what are the shares of K and L,
respectively?
a. 4,260 3,230
b. 4,680 3,120
c. 4,820 3,430
d. 4,840 4,230
On July 1, 2010, I and P contributed merchandise of P66,000 and P90,000, respectively. For
the period between July 1 and October 1, V sold venture merchandise on account for P240,000,
of which he collected P229,500, allowed sales discounts of P4,050, and wrote of P6,450 as
uncollectible. V paid joint venture expenses of P58,650 from the venture cash.
On October 1, the joint venture was terminated and unsold merchandise was returned at the
following values: to I- P15,000, and to P- P11,400. Cash settlement was completed by V on
the same day.
77. What is the net profit of the joint venture after the bonus to V?
a. 31,200 c. 33,072
b. 33,000 d. 33,420
78. What would be the cash settlement received by I and P, respectively?
a. 62,210.00 90,170.00
b. 62,234.00 90,194.00
c. 72,333.33 92,166.67
d. 73,468.00 101,788.00
On January 1,2013 entities A and B each acquired 30 per cent of the ordinary shares that carry
voting rights at a general meeting of shareholders of entity M for P100,000. The purchase price is
equal to the fair value of 30 per cent of entity M's identifiable assets less 30 per cent of its identifiable
liabilities. entities A and B immediately agreed to share control over entity M. For the year ended
December 31,2013 entity M recognized a loss of P600,000. Entities A and B have no constructive
or legal obligation with respect of their jointly controlled entity's loss and have made no payments on
its behalf.
Entity M recognized profit for the year ended December 31,2013 of P800,000. There is no published
price quotation for entity M. Investments are accounted for using the equity method.
81. At December 31, 2013 how much investment in entity M should be reported by each venturer?
a. P100,000 c. P 180,000
b. P-0- d. P40,000
82. At December 31,2013 each venturer must measure their investment in entity M at:
a. P160,000 c. P180,000
b. P100,000 d. P-0-
Number 16 and 17 are based on the following data (Appendix Problem): Guerrero 2013
On March 1,2013 entities A and B each acquired 30 per cent of the ordinary shares that carry voting
rights at a general meeting of shareholders of entity AB for P300,000. Entities A and B immediately
agreed to share control over entity AB.
On December 31, 2013 entity AB declared a dividend of P100,000 for the year 2013. Entity AB
reported a profit of P80,000 for the year ended December 31, 2013. At December 31,2013 the fair
value of each venturer's investment in entity AB is P293,000 and the cost to sell amounts to P3,000.
There is no published price quotation for entity AB. Investments are accounted for using the equity
method.
83. At December 31,2013 entities A and B must each report their investment in Entity AB at:
a. P290,000 c. P300,000
b. P293,000 d. P296,000
86. Using the same facts in No. 85, assuming on January 2,2013 entity X also declared a dividend
of P100,000 for the year 2012 and at December 31,2013 the fair value of each venturer's
investment in entity X is P400,000.
How much dividend income each venturer should recognize on December 31,2013?
a. P45,000 c. P75,000
b. P30,000 d. P15,000
Using the same facts in No. 85. However, there is a published price quotation for entity X.
87. How much income is to be recognized by each venturer in profit or loss for the year ended
December 31, 2013?
a. P165,000 c. P125,000
b. P170,000 d. P200,000
88. At December 31,2013 the venturers must each report its investment in entity X at:
a. P425,000 c. P330,000
b. P300,000 d. P345,000
90. What is the interest of bank B in the joint arrangement at December 31, 2014?
a. P52.5 M c. P54.5M
b. P52.4 M d. P50.5 M
In 2013 each party also incurred costs of running the helicopter when they made use of the helicopter
(eg Red incurred costs of P200,000 on pilot fees, aviation fuel and landing costs). In 2013 the parties
earned rental income of P2.5 million by renting the helicopter to others.
91. What is the net income (loss) of the joint arrangement on December 31,2013?
a. P5 M c. P1.5M
b. P2.0 M d. P2.5 M
92. What is the book value of the helicopter in the books of Red on December 31,2013?
a. P28.5 M c. P21.0M
b. P19.0M d. P 9.5 M
93. What is the share of White in the net income (loss) of the joint arrangement on December
31,2013?
a. P166,667 c. P125,000
b. P150,000 d. P160,000
94. What is the interest of Co. R in the joint venture as of December 31, 2012?
a. P14M c. P15M
b. P 14.45M d. P20M
96. What is the interest of Co. S in the joint arrangement as of December 31, 2013?
a. P18.7M c. P10.0M
b. P14.5 M d. P14.0M
ANSWER SHEET
1.B 26.A 51.A 76.B
2.A 27.D 52.D 77.B
3.C 28.D 53.A 78.A
4.B 29.C 54.B 79.A
5.D 30.D 55.A 80.B
6.A 31.B 56.A 81.B
7.D 32.B 57.D 82.A
8.A 33.D 58.D 83.A
9.B 34.D 59.B 84.A
10.A 35.D 60.D 85.A
11.A 36.D 61.A 86.C
12.A 37.A 62.D 87.B
13.C 38.B 63.A 88.A
14.A 39.C 64.C 89.B
15.D 40.B 65.C 90.B
16.A 41.B 66.B 91.A
17.C 42.B 67.B 92.D
18.D 43.C 68.A 93.A
19.A 44.A 69.D 94.B
20.D 45.A 70.D 95.A
21.B 46.A 71.A 96.A
22.A 47.B 72.B 97.C
23.A 48.C 73.A 98.C
24.A 49.B 74.A 99.A
25.B 50.C 75.D
Solutions
1. Suggested answer (b) Joint Control
This is the definition of joint control provided by PAS 31, Interests in Joint Ventures.
5. Suggested answer (d) Not included in the financial statements of the venturer
Proportionate consolidation is where the venturer's share of the joint venture's assets,
liabilities, income and expenditure is combined line by line with the venturer's own items.
Proportionate consolidation uses the principles used in the full consolidation process required
by IAS 27 for the reporting of subsidiaries. The different proportion that is consolidated in
respect of a subsidiary and a joint venture represents the different levels of control held by
the parent entity. In a subsidiary, the parent has ultimate control and therefore, 100% of
a subsidiary net assets and results are consolidated; whereas in joint venture, control is
shared, so only the venturer's share in consolidated
8. A joint venture is where two or more parties act together under contractual agreements to
carry out activities that are under their joint control. This is exemplified by when the parties
agree to share control and to require unanimous agreement for all strategic decisions.
Therefore, both Flame and Tall should account for their investments as venturers in a joint
venture.
11. (a)
The joint arrangement is carried out through a separate vehicle whose legal form confers
separation between the parties and the separate vehicle. The terms of the contractual
arrangement do not specify that the parties have rights to the assets, or obligations for the
liabilities, of bank C, but it establishes that the parties have rights to the net assets of bank
C. The commitment by the parties to provide support if bank C is not able to comply with
the applicable legislation and banking regulations is not by itself a determinant that the
parties have an obligation for the liabilities of bank C. There are no other facts and
circumstances that indicate that the parties have rights to substantially all the economic
benefits of the assets of bank C and that the parties have an obligation for the liabilities of
bank C. The joint arrangement is a joint venture. The parties recognize their rights to the
net assets of Harrison Company as investments and account for them using the equity
method.
13. At December 31,2013 entity X would report its investment in entity O at P419,000
computed as follows:
Cost of investment January 1,2011 (P300,000 + P50,000) P 350,000
Profit share (30% x P400,000) - (30% x 20,000) 114,000
Dividend income (30% x P150,000) (45,000)
• Investment in entity O, December 31, 2013 P419,000
Unrealized profit (50/150 x P60,000) P20,000
14. At December 31,2013 entity M would report its investment in entity Z at P369,000 computed
as follows:
Cost of investment, January 1,2013 (P300,000 + P50,000) P 350,000
Profit share (30% x P400,000) 120,000
Unrealized profit (50/150 x 60,000) 30% ( 6,000)
Dividend income (30% x P150,000) (45,000)
Investment in entity Z, December 31, 2013 P419,000
15. Investment of Machine, January 1,2013:
Carrying amount P80,000
Realized gain (PI00,000-P80,000) 50% 10,000 P90,000
Profit share (50% x P30.000) 15,000
Realized gain on machine (P10,000 /10 yrs) 1,000
Investment account balance, December 31, 2013 P106,000
16. At December 31,2013 entities A and B must each report its investments in entity Z at
P285,000 computed as follows:
Cost of investment P 300,000
Profit share (10/12 x P60,000) x 30% 15,000
Dividend income (30% x P100,000) ( 30,000)
Investment in entity Z, December 31, 2013 P285,000
17. Suggested answer (c) P1,400,000
18. (d)
Inv. in Joint Operation
JO before P/L (given) P6,000 P19,500 (?) unsold merchandise (d)
PI3,500 JO profit (P4,500)
21. (b)
Inv. in Joint Operation
PurchasesP 1,815,000 P6,600,000 Sales
2,475,000
Expenses 1,899,150
6,189,150 P6,600,000
P 410,850 JO profit
22.
Inv. in Joint Operation
Purchase P26,125 P22,000 Sales
Expenses 4,125 16,500
P30,250 P38,500
P 8,250
Distribution of profit:
RR SS Total
Commission on purchase:
20%xP26,125 P5,225 P5.225
Commission on sales
25% x P22,000 5,500 5,500
25%x PI 6,500 P4,125 4,125
Balance, equally (3,300) (3,300) (6,600)
P7.425 P 825 P8,250
23.
(a) - downstream transaction (refer also to consolidation for corollary
analysis)
Gross Profit Markup: P36,000/P90,000 = 40%
Inventory Remaining at Year-End P20,000
x: Markup 40%
Unrealized profit in ending inventory P 8,000
x: Ownership 30%
Intercompany Unrealized profit in ending inventory P 2,400
24. (a)
Inv. in Joint Operation X, Capital Inv. in Joint Operation Y, Capital
(1) P4.000 P6.500 (2) (2) P6.500 P4.000 (1) (3) P2.500 P6,5O0
(4) (4) P6.500 P2,500 (3)
P2.500 P2,500 P4,000 P4.000
26. (a)
Inv. in Joint Operation V, Capital I, Capital P, Capital
(1) 156,000 229,500 (2) (2)229,500 58,560 (3)
(4)15,000 66,000 (1)(4)11,400 90,000 (1)
(3) 58,560 26.400 (4) 18,512 (5)
11,234 (5) 11,594 (5)
(5) 41,340 41,340 JO profit 229,500 77,072 15,000
77,234 11,400 101,594
152,428 62,234
90,194
(1) Merchandise-investments (4) Unsold merchandise
(2) Net sales (5) Profit share
(3) Expenses paid
/ Total
Bonus* P 8,268 P 8,268
Interest at 6% for 3 months
P66,000x6%x3/12 P 990
990
P90,000x6%x3/12 P1,350
1,350
Balance, equally 10,244 10,244 10,244
30,732
P18.512 P11,234 P11,594
P41,340
*B = 25%(P41,340-B) B = P10,335/1.25 . B = P8,268
27.
N's books: It show P5.000 receivable from P, and P3,000 payable to O; thus, N should
receive net cash of P2.000:
O, capital 3,000
Cash 2,000
P, capital 5,000
O's books: It shows P5.000 receivable from P, and P2.000 payable to N; thus, O should
receive net cash of P3.000:
N, capital 2,000
Cash 3,000
P, capital 5,000
P's books: It shows P2,000 payable to N and P3.000 payable to O; thus, in final
settlement, P should pay a total of P5,000; P2.000 and P3.000 to N and O, respectively:
N, capital 2,000
O, capital 3,000
Cash 5,000
28. (d)
Inv. in Joint Operation LL, capital MM, capital
LL P16,000 P18.000 (1) 16,000 (1) 32,000 (1)
NN 32,000 1,200 3,600 profit (1/3)
3,600
JV bef. P/LP30.000 P42.000 unsold 20,800 35,600 (d)
10% Bonus P1,200 P12,000 JO profit NN, capital
P10,800 JO profit (1) 18,000 P3,600 profit (1/3)
after bonus 14,400 (d)
Since LL manages the joint operations, the joint operations cash is within his control which
needed to be paid to MM amounting to P35,600 and in turn will receive P14,400 from NN.
29
(c)
Inv. in Joint Operation Tan, capital
PI5,000 before P/L unsold P27.000
10,500 unsold merch. merch. P10.500 4,500 profit (1/3 XP13.500)
Salary-Reyes P 12,000 P25.500 JO profit P10,500
P31,500
P13.500 balance P21,000 to Tan (c)
Dupe Fluke
Initial investments 137,500,000 137,500,000
Distribution of net income (equally) 34,512,500 34,512,500
Investment balances Fluke
Initial investments 137,500,000 137,500,000
Cash purchase of shares (1,237,500,000) (495,000,000)
Cash sales of shares 1,339,250,000 462,000,000
Cash dividend received 1,100,000 2,750,000
Interest paid (2,200,000) (1,375,000)
Total cash held 238,150,000 105,875,000
Less Investment balances 172,012,500 172,012,500
Cash to be received (paid) (66,137,500) 66,137,500
31. (b)
The joint arrangement is a joint venture because it needs unanimous consent to all parties
involved. The parties recognize their rights to the net assets of Harrison Company as
investments and account for them using the equity method.
The Investment in Basket Co. as of December 31 is as follows:
Acquisition cost, January 1, 2013 P 500,000
Add (deduct):
Share in net income (P90,000 x 40%] 36,000
Share in dividends (P30.000 x 40%) ..' ( 12,000)
Amortization of allocated excess ., ( 16,400)
Investment balance on December 31 P 507,600
Cost of investment P 500,000
Less: Book value of interest acquired [40% x (PI,400,000 - P500,000)] 360,000
Allocated exce P 140,000
Less: Over/undervaluation of assets and liabilities:
Increase in building (PI40,000 x 40%) 56,000
Increase in trademark (P210.000 x 40) 84,000
33.(d)
The joint arrangement is a joint venture because it needs unanimous consent to all parties
involved. The parties recognize their rights to the net assets of Harrison Company as
investments and account for them using the equity method. The Investment in Goldman
Co. as of December 31, 2015 is as follows:
34. (d)
To determine whether a contractual arrangement gives parties control of an arrangement
collectively, it is necessary first to identify the relevant activities of that arrangement. That
is, what are the activities that significantly affect the returns of the arrangement?
When identifying the relevant activities, consideration should be given to the purpose and
design of the arrangement. In particular, consideration should be given to the risks to which
the joint arrangement was designed to be exposed, the risks the joint arrangement was
designed to pass on to the parties involved with the joint arrangement, and whether the
parties are exposed to some or all of those risks.
In many cases, directing the strategic operating and financial policies of the arrangement
will be the activity that most significantly affects returns. Often, the arrangement requires
the parties to agree on both of these policies. However, in some cases, unanimous consent
may be required to direct the operating policies, but not the financial policies (or vice versa).
In such cases, since the activities are directed by different parties, the parties would need
to assess which of those two activities (operating or financing) most significantly affects
returns, and whether there is joint control over that activity. This would be the case
whenever there is more than one activity that significantly affects returns of the
arrangements, and those activities are directed by different parties.
Based on the ownership structure, even though Wallace can block any decision, Wallace
does not control the arrangement, because Wallace needs Zimmerman to agree —
therefore joint control between Wallace and Zimmerman (since their votes and only their
votes, together meet the requirement). Because they are the only combination of parties
that collectively control the arrangement, it is clear that Wallace and Zimmerman must
unanimously agree.
The appropriate method for the joint venture is the equity method. The Income
from Investment in Gold Co. on December 31, 2015 is as follows:
Share in net income (P140,000 x 40%) P 56,000
Amortization of allocated excess ( 0)
Income from Investment on December 31, 2015 P 56,000
35. (d)
No joint control — multiple combinations of parties could be used to reach agreement and
collectively control the arrangement (i.e., Wallace and
Zimmerman or Wallace and American could vote together to meet the requirement). Since
there are multiple combinations, and the contractual agreement does not specify which
parties must agree, there is no unanimous consent.
It should be noted that since there is no joint control as indicated per problem and the
presence of 50% ownership holding is presumed to give significant influence of Wallace over
Goldman, unless it can be clearly demonstrated that this is not the case. Therefore, Goldman
Company is considered as an associate instead of a joint venture.
The appropriate method for Investment in Associates is the equity method. The Income from
Investment in Gold Co. on December 31, 2015 is as follows:
Share in net income (P140,000 x 40%) P 56,000
Amortization of allocated excess (0)
Income from Investment on December 31, 2015 P 56,000
36. (d)
No joint control - multiple combinations could be used to reach agreement.
It should be noted that since there is no joint control as indicated per problem and the
presence of 35% ownership holding is presumed to give significant influence of Wallace over
Goldman, unless it can be clearly demonstrated that this is not the case. Therefore, Goldman
Company is considered as an associate instead of a joint venture.
The appropriate method for Investment in Associates is the equity method. The Income from
Investment in Gold Co. on December 31, 2015 is as follows:
Share in net income {P140.000 x 40%) P 56,000
Amortization of allocated excess (0)
Income from Investment on December 31, 2015 P 56,000
37. (a)
The 20, 000 shares contributed should be valued at market value, thus, P800,000 (20,000
shares x P40/share).
38. (b)
Inv. in Joint Operation
20,000 shares at P40/sharesP800,000 Sold
Expenses 3,000 P198,000 4,500 xP44
4,700 125,000 5,000 xP25
13,600* Cash dividend
13,600 x P1
Sold
168,000 6,000 xP28
266,000 7,600 x P35
P807,700 P770.600
JO loss P 37,100
39. (c)
Inv. in Joint Operation
Share in loss P400,000 Investment
10,000 10,000 shares xP40
P37,100x = P18,550
20,000
P381,450
40. (b)
Unrealized loss due to decline in the value of shares at the
time of investment (P62-P40) x 4,000 shares P68.000
Share in JO loss (P37.100 x 4/20) 7,420
Reduction of loss by cash dividend (P13.600 x 4/20) 2,720
P98.140
41 (b)
Inv. in Joint Operation Bar, Capital Car, Capitai
Purchases P 950 P 800 Sales 800 950
600 150
Expenses 150 600 270 30
P1,100 PI,400 800 1,220 600 180
P 300 P 300 JO profit (b) 420 due to (b) 420 due from
Distribution of profit:
Bar Car Total
Commission on net purchases
20%xP950 P190 P190
Commission on sales:
25%xP800 200 200
25%xP600 PI 50 150
Balance, equally ( 120) ( 120) ( 240)
P270 P 30 P300
42. (b)
43. (c)
Inv. in Joint Operation N, Capital O, Capital
before saleP6,500 P3,500sale Loss P1,100 P14,500 loss P1,100 P6.500
JO loss P3,000 (c) P13,400 (a) P5.400
Distribution of loss:
M N O Total
Salary 300 P300
Balance,equally (1,100) P(1,100) P(1.100) (3,300)
P( 900) P(1.100) P 1,100) P3,000
44. (a)
45. (a)
Inv. in Joint Operation McKee, Capita Nelson, Capital
(1JP45.000 P48.700 (2) (2)P48,700 P45,000 (1) (2) PI6,800 P 18,000
(1)
18,000 16,800 (4) 40 80 (3) (4) 100 50
(3)
(3) 80 40 (4) 1,255 (5) 1,255
(5)
50 100 P 2,405 (a) P 2,405
(a)
P63,130 P65.640
(5)P 2,510 P 2,510 JO profit (a)
(1) Purchases (4) Dividend
(2) Sales (5) Distribution of profit
(3) Interest expense
46. (a) .
47 (b)
Revenue:
Total cash receipts (P78,920 + P65,425) P144,345
Less: Cash investments included (P30,000 + P20,000) ................. 50,000
Cash Sales P 94,345
Add: Proceeds from sale of remaining assets 60,000
Total Revenue P154,345
Less: Expenses (P62,275 + P70,695) 132,970
Net Income P 21,37
48. (c)
Benin Capital Sucat, Capital
Receipts 78,920 30,000 Contribution Receipts 65,425 20,000Contribution
62,275 Disbursement 70,695Disbursement
12,825 profit (3/5) 8,550 profit (2/5)
78,920 105,100 65,425 99,245
26,180 (c) 33,820 (c)
49. (b)
Inv. in Joint Operation
(b) JO before P/L (?) P5,400
P10,400 unsold merchandise
P 5,000 JO profit (given)
50. (c)
Inv. in Joint Operation
(c) JO before P/L (?) P11,400 P10,400 unsold merchandise
JO loss (given) P 1,000
51. (a)
Inv. in Joint Operation Alas, Capital
Purchases P20.000 P77.000 (?) Sales (a) Unsold merch. P600 P20.000
Cont/lnvest.20,000 18,600 Profit (50%)
Expenses 800 P600 P38.600
1,800 P38.000to Alas (d)
P42.600 P77.000
P34.400 (P16,000 + P18,400)
Unsold Merch.
2,800 (P600 +P2.20C)
P37.200 JO Profit
52. (d)
53. (a)
Investment in Joint Operation
before P/L P15,000 P25.000 unsold merchandise
P10,000 JO Profit (a)
54. (b)
Inv. in Joint Operation
P30,000 before P/L
25,000 unsold merchandise
P55,000 JO profit (b)
55. (a)
Inv. in Joint Operation Santo Capital
Purchases P10,000 P7.200 Sales P 10,000 Contr./lnvest.
Freight-in 240 5,120 unsold 910 profit (equally)
Freight-cut 260 (P10,000 + P240) x 1/2 P10.910 to Santo (a)
P10,500 P12,320
P1,820 JO profit (a)
56. (a)
57. (d)
Inv. in Joint Operation
Purchases P25,000 P92,650 (?) Sales (d)
25,000
Expenses 1,850
2,600
P54,450 P92,650
P38,200 (P18,000 +
P20,200)
unsold merch.
(P1,000 +
2,800 P1,800)
P41,000 JO gain (b)
58. (b)
59. (b)
Investment in Joint Operations
11/5 P12,750 P30,600 11/18
11/17 10,500 6,300 12/12
11/22 525 1,815 12/28
12/3 5,250
12/13 600
P29,625 P38.715
P 9,090 JV profit (b
60. (d)
A's Books
JO Cash B, Capital C, Capital
11/18 P30.600 P5.250 12/3 12/28P1.815 P10,500 11/17 P12,750 11/5
12/12 6,300 600 12/13 2,727 profit (30%) 818 profit(20%)
525 11/22 P1.815 P13,227 P14,568 to C (d)
11,412 to B P11,412 to B (d)
14,568 to C
P36,900 =32,355
to A P 4,545 '(d)
61. (a)
Inv. in Joint Operation JJ, Capital
11/6 P 8,500 P20,400 11/10 12/30 P540 P8,500 11/6
11/8 7,000 4,200 11/12 1,320 profit (2/10)
11/10 200 1,210 11/28 P540 P9,820
12/8 3,500 540 12/30 P9,280 to JJ
12/14 550
P19,750 P26,350
P 6,600 JO profit (a)
62. (d)
63. (a)
Inv. in Joint Operation AnsoiVcapital
Merch. cont.P 8,000 P14,000 Sales Unsold P'4,150 P 8,000 Contributions/
Invest. 6,000 Loss (50%) 375 5,000
Purchases 4,000 P4.525 PI 3,000
Expenses 400 P 8,475 to Anson 7. (c)
300
200
P18,900 P14,000
5. (a) P 4,900 P 4,150 unsold
6. (c) loss P750
64. (c)
65. (c)
In this case, the Joint Venture credit balance in the amount ofP225,000 is assumed to be
before the unsold merchandise. Because if this is to be taken as after the unsold
merchandise, the answer would be P548,000, which is not one of the choices provided in the
problem
81. At December 31, 2012 each venturer must measure its investment in entity M at P0
computed as follows:
Cost of investment P100,000
Loss share ( 100,000)
Investment in entity M, December 31, 2012 P -0-
In 2012 each venturer does not recognize (PI80,000 of its share of entity M's losses. The
loss recognized by the entity is limited to its investment of P100,000.
82. At December 31, 2013 entities A and B must each measure their investment in
entity M at P160,000 computed as follows:
Cost of investment, 2012 P 100,000
Loss share, 2012 ( 100,000)
Profit share, 2013:
Profit share, 2013 (30% x P800,000) P240,000
Unrecognized loss in 2012 ( 80,000) 160,000
Investment in entity M, December 31, 2013 P 160,000
83. At December 31,2013 entities A and B must each report their investment in entity AB at
P290,000 (at recoverable amount 293,000 - 3,000).
84. At December 31, 2013 the carrying amount is reduced to P290,000 (the lower of its
recoverable amount and its carrying amount before impairment (P300,000 cost). Each
venturer recognizes the impairment of P10,000 in profit or loss for the year ended December
31, 2013.
85. At December 31,2013, the venturers must report their investments in entity X (a jointly
controlled entity) at P300,000 (at cost). There is no impairment loss, because the fair value
(P425,000) exceeds its carrying amount P300,000)
86. The venturers must, without regard to whether the distributions are from entity X's
accumulated profits arising before or after January 1,2013, each recognize dividend income
of P75,000 in profit for the year ended December 31, 2013. The computation is:
Dividends declared on January 2,2013 (P100,000 x 30%) P 30,000
Dividends declared on December 31,2013 (P150,000 x 30%) 45,000
Total dividend income P5,000
87. The venturers each recognize a total income P170,000 computed as follows:
Dividend income (30% x P150,000) P45,000
Increase in value of investment (P425,000 - P300,000) 125,000
Total income to profit or loss P170,000
88. At December 31,2013 the venturers must each report its investment in entity X at P425,000
(affair value). Even though the venturers each used the cost model as its accounting policy
for investment in entity X they account for their investments using the fair value model
because entity Z has a published price quotation.