CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING GERMAN AND VALIX

JOINT ARRANGEMENTS

Part I - Theory of Accounts

1. It is characterized by a contractual arrangement whereby two or more parties have joint control of
the arrangement.
A. Joint arrangement
B. Joint operation
C. Joint venture
D. Jointly controlled asset

2. It is the contractually agreed sharing of control of an arrangement which exists only when
decisions about relevant activities require unanimous consent of the parties sharing control.
A. Control
B. Significant influence
C. Joint control
D. Solidary control

3. Under IFRS 11, which of the following may considered when determining whether the joint
arrangement is a joint operation or a joint venture?
A. Legal form (separate vehicle)
B. Terms and conditions (rights to assets and obligations to liabilities or rights to net assets)
C. Other circumstances (primary purpose of the joint arrangement)
D. All of the choices may be considered

4. Under full PFRS, what method shall the venturer utilize in accounting for its investment in a joint
venture?
A. Cost method
B. Equity method
C. Fair Value method
D. Any of the choices

5. What is the classification of the joint arrangement when the arrangement is structured without a
separate vehicle such as when the rights of each party to the total assets and obligations for total
liabilities relating to the arrangement are clearly established?
A. It shall be classified as joint venture.
B. It shall be classified as joint operation.
C. Neither joint venture nor joint operation.
D. It can be either a joint operation or joint venture depending on the company policy of the
parties to the joint arrangement.

6. What is the classification of the joint arrangement when the assets and liabilities relating to the
arrangement are held by a separate vehicle or when the arrangement is established with a separate
vehicle?
A. It shall be classified as joint venture.
B. It shall be classified as joint operation.
C. Neither joint venture nor joint operation.
D. It can be either a joint operation or joint venture depending on the legal form of the separate
vehicle, terms of the contractual arrangement or other relevant facts and circumstances.

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Part II: Problem Solving

Problem 1

AAA Company and BBB Company entered into a joint arrangement with each other, incorporating
ZZZ Corporation in the process.

The contractual arrangement of ZZZ Corporation provides the parties with rights to the net assets of the
separate vehicle. However, assessing other facts and circumstances revealed that the activities of ZZZ
Corporation is primarily designed for the provision of output to AAA Company and BBB Company,
and prevents ZZZ corporation from selling of outputs to third parties. which indicates that the parties
have rights to substantially all the economic benefits of the assets of the arrangement and when settling
the liabilities relating to the activity of the arrangement is dependent on the parties on a continuous
basis.

AAA Company and BBB Company owns 55% and 45% of the outstanding shares of ZZZ Corporation,
respectively. The trial balance of ZZZ Corporation at the end of the year are as follows:

Cash 1,000,000 Accounts payable 900,000

Inventory 700,000 Notes payable 1,200,000
Building 2,500,000 Bonds payable 1,400,000
Land 3,000,000 Share capital 3,000,000
Expenses 800,000 Sales revenue 1,500,000
Total 8,000,000 Total 8,000,000

Other relevant information are as follows:

 Half of the inventory is owned by AAA Company, the rest are jointly owned by the entities
 The building is owned by BBB Company
 The obligation to pay the notes payable is assumed by BBB Company
 The remaining assets and liabilities not mentioned above are jointly owned by the entities
 The sales revenue includes sales to AAA Company and BBB for P250,000 and P200,000,
respectively. As of the end of the year, AAA Company and BBB Company has already sold
60% and 50% of these to third parties

1. How much is the share of AAA Company in the total assets of the joint arrangement?
A. 2,550,000
B. 2,742,500
C. 3,182,500
D. 3,960,000

2. How much is the share of BBB Company in the total liabilities of the joint arrangement?
A. 1,200,000
B. 1,575,000
C. 2,235,000
D. 3,600,000

3. How much is the share of AAA Company in the sales revenue of the joint arrangement?
A. 1,300,000
B. 825,000
C. 715,000
D. 577,500

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Problem 2
Joint venturers A Company and B Company have a 45% and 40% interest in C Corporation,
respectively. The rest of the 15% ownership are widely dispersed to other investors. On January 1,
2024, the investment in joint venture account in the books of A Company and B Company amounted to
P1,300,000 and P2,100,000. The following transactions were noted for the calendar year 2024:

 C sold inventories to A for a gross profit of P200,000. As of the year end, A has already sold
40% of these to third parties.
 B sold inventories costing P100,000 to C for P150,000. As of the year end, 10% of these remain
in C’s inventories
 On July 1, 2024, A sold a piece of equipment with carrying value of P500,000 to C for
P750,000. As of the date of sale, the said equipment has a remaining useful life of 5 years.
 On October 1, 2024, C sold a piece of machinery to B at a loss of P300,000. As of the date of
sale, the said machinery has a remaining useful life of 4 years.
 C was able to generate a net income of P2,500,000 for the year ended December 31, 2024, and
declared and paid P400,000 cash dividends on July 19, 2024.

1. How much is the investment income of A Company for the year ended December 31, 2024?
A. 1,125,000
B. 1,023,750
C. 969,750
D. 789,750

2. How much is the balance of the investment in joint venture account of B as of

December 31, 2024?
A. 3,210,500
B. 3,190,000
C. 3,050,500
D. 2,940,000

Problem 3
On January 1, 2024, A Company invested P500,000 on B Corporation for a 50% interest. A Company,
together with another entity, has obtained joint control over B Corporation. After assessment of the
circumstances in accordance IFRS 11, it was determined that the joint arrangement should be treated as
a joint venture.

The operations of the joint venture for 2024 resulted to a net loss of P1,400,000, but recovered with a
net income of P600,000 during 2025.

1. How much is the share in net loss to be recognized by A Company from its investment in B
Corporation for the year ended December 31, 2024?
A. 1,400,000
B. 1,000,000
C. 700,000
D. 500,000

2. How much is the investment in joint venture account to be presented by A Company as of the
year ended December 31, 2025?
A. 100,000
B. 200,000
C. 300,000
D. 600,000

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Problem 4

On January 1, 2024, A Company, a small and medium enterprise (SME), invested P355,000 cash in B
Company, a joint venture, for 50% interest. For the year ended December 31, 2024, the joint venture
reported net income of P150,000 and distributed cash dividend in the amount of P50,000. As of
December 31, 2024, the fair value of the investment in joint venture is P350,000 and the estimated cost
of disposal is 10% of fair value. The value in use of the investment is estimated at P300,000.

1. Under IFRS for SMEs, how much impairment loss should be recognized by A Company for
the year ended December 31, 2024 if the SME elects equity method?
A. 90,000
B. 105,000
C. 140,000
D. 0

2. Under IFRS for SMEs, how much is the carrying value of Investment in Joint Venture to be
reported by A Company as of December 31, 2024 if the SME elects cost method?
A. 300,000
B. 315,000
C. 350,000
D. 355,000

3. Under IFRS for SMEs, what amount will affect the current earnings of A Company for the
year ended December 31, 2024 if the SME elects fair value method?
A. 20,000
B. 25,000
C. (5,000)
D. (10,000)

END

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