Deck 32: Joint Arrangements

Question 1

Which of the following statements is correct?

A) All joint arrangements which are not structured through a separate vehicle are classified as joint ventures.
B) For a joint venture, the rights pertain to the rights and obligations associated with individual assets and liabilities, whereas with a joint operation, the rights and obligations pertain to the net assets.
C) Where the joint operators have designed the joint arrangement so that its activities primarily aim to provide the parties with an output it will be classified as a joint venture.
D) In considering the legal form of the separate vehicle if the legal form establishes rights to individual assets and obligations, the arrangement is a joint operation. If the legal form establishes rights to the net assets of the arrangement, then the arrangement is a joint venture.

Answer 1

D

Question 2

Which of the following statements is incorrect?

A) Joint arrangements may be entered into to manage risks involved in a project.
B) Joint arrangements require investors to have equal interests in the joint arrangement.
C) Joint arrangements may be entered into to provide the parties with access to new technology or new markets.
D) The key feature of a joint arrangement is that the parties involved have joint control over the decision making in relation to the joint arrangement.

Answer 2

B

Question 3

The matters generally dealt with in a joint arrangement contract include the: $$\begin{array} { | l | c | c | c | c | } \hline & \text { I } & \text { II } & \text { III } & \text { IV } \\\hline \text { Activity, duration and reporting obligations } & \text { Yes } & \text { Yes } & \text { Yes } & \text { Yes } \\\hline \text { Capital contribution of the venturers } & \text { Yes } & \text { Yes } & \text { Yes } & \text { No } \\\hline \text { Sharing of the output, expenses or results } & \text { Yes } & \text { Yes } & \text { No } & \text { Yes } \\\hline \text { Voting rights of the venturers } & \text { Yes } & \text { No } & \text { No } & \text { No } \\\hline\end{array}$$

A) I.
B) II.
C) III.
D) IV.

Answer 3

I.

Question 4

Four joint operators agree to an arrangement in which they have an equal share in a joint operation that produces sunflower oil. The work undertaken in setting up the joint operation cost $200 000 and each operator contributed in cash. Each operator will need to recognise the following accounting entry:

A) DR Cash in JO $50 000 CR Cash $50 000
B) DR Inventories in JO $50 000 CR Cash $50 000
C) DR Cash in JO $200 000 CR Cash $200 000
D) DR Cost of joint operation product $200 000 CR Cash $200 000

Question 5

Jensen Ltd and Harris Ltd have established the JH Joint Operation. Jensen Ltd has a 75% interest in the joint operation and Harris Ltd has a 25% interest. Jensen Ltd contributed an asset with a carrying amount of $130 000 and a fair value of $150 000 and Harris Ltd agreed to provide technical services to the joint operation over the first two years of operations. The fair value of the technical services was agreed to be $50 000 and the cost to provide the services was estimated at $45 000 at the inception of the joint operation. As part of its initial contribution entry Jensen Ltd will record a:

A) DR Services receivable in JO $50 000.
B) DR Plant in JO $97 500.
C) CR Gain on sale of plant $15 000.
D) CR Plant $150 000.

Question 6

Cash contributed to a joint operation was used to purchase machinery ($500 000) and raw materials ($120 000). The following entry would be part of the overall recording of these transactions:

A) DR Machinery $500 000 DR Raw materials $ 120 000
CR Cash $620 000
B) DR Work in progress $620 000 CR Joint operation capital $620 000
C) DR Cash $620 000 CR Contribution to joint operation $620 000
D) DR Cash $620 000 CR Machinery $500 000
CR Raw materials $ 120 000

Question 7

Which of the following statements in relation to joint control is incorrect?

A) Each party must have an equal interest for joint control to exist.
B) Joint control requires the unanimous consent of the parties sharing control.
C) Joint control exists only where there is contractually agreed sharing of control.
D) Entities over which a party has joint control are accounted for in accordance with AASB 11 Joint Arrangements.

Question 8

The particular relationship between parties that signifies the existence of a joint arrangement is:

A) control over the operating policies of one party by another party.
B) shared influence by two parties over the activities of another party.
C) joint control by the parties over the activities of an operation.
D) significant influence by one party over the other party.

Question 9

A joint operation holds plant and equipment with a carrying amount of $450 000. The two joint operators participating in this arrangement share control equally. They also depreciate plant and equipment using the straight-line method. The plant and equipment has a useful life of 6 years. At reporting date, each joint operator must recognise the following entry, in relation to depreciation, in its records:

A) DR Depreciation $37 500.
B) DR Depreciation $75 000.
C) DR Assets in joint operation $37 500.
D) DR Investment in joint operation $75 000.

Question 10

Rose Limited and Petal Limited formed a joint operation and share in the output of the joint operation 75:25. The joint operation paid a management fee of $250 000 to Rose Limited during the current period. The cost to Rose Limited of supplying the management service was $200 000. The amount of profit that Rose Limited will recognise in relation to the provision of the management fee to the joint operation is:

A) $50 000
B) $37 500
C) $12 500
D) $0

Question 11

A 50:50 joint operation was commenced between two participants. Mary Company contributed cash of $90 000, and Strickland Company contributed a Building with a fair value of $90 000 and a carrying amount of $75 000. Using the line-by-line method of accounting, Strickland Company would record:

A) DR Building in JO $75 000 CR Building $75 000
B) DR Building in JO $945000 CR Building $37 500
CR Gain on sale of building $7 500
C) DR Investment in joint operation $45 000 CR Building $37 500
CR Gain on sale of building $7 500
D) DR Cash in JO $45 000 DR Building in JO $45 000
CR Building $75 000
CR Gain on sale of building $15 000

Question 12

AASB 11 Joint Arrangements, provides that joint control exists where:

A) no single party is in a position to control the activity unilaterally.
B) no one party may be appointed as the manager of the joint arrangement.
C) one party alone has power to control the strategic operating decisions of the joint arrangement.
D) the decisions in areas essential to the goals of the joint arrangement do not require the consent of the parties.

Question 13

A 60:40 joint operation was commenced between two participants. Andrews Limited contributed cash of $90 000, and Michaels Limited contributed a Building with a fair value of $60 000. Using the line-by-line method of accounting, Andrews Limited would record which of the following entries?

A) DR Building in JO $90 000 CR Cash $90 000
B) DR Cash in JO $90 000 CR Cash $90 000
C) DR Cash in JO $54 000 DR Building in JO $36 000
CR Cash $90 000
D) DR Investment in joint operation $90 000 CR Cash $90 000

Question 14

A 70:30 joint operation was commenced between two participants. Marian Limited contributed cash of $210 000, and Keyes Limited agreed to provide technical services to the joint operation over a period of three years. The fair value of the services was determined to be $90 000 and the cost to provide the services was estimated to be $81 000. Using the line-by-line method of accounting, Keyes Limited would record which of the following entries?

A) DR Cash in JO $90 000 CR Obligation to JO $90 000
B) DR Cash in JO $63 000 CR Obligation to JO $56 700
CR Profit on provisions of services $ 6 300
C) DR Cash in JO $81 000 CR Obligation to JO $81 000
D) DR Cash in JO $81 000 DR Receivable in JO $ 9 000
CR Obligation to JO $90 000

Question 15

Justice Company and League Company equally share the output of their joint operation. The joint operation paid a service fee of $60 000 to Justice Company during the current period. The cost incurred by Justice Company to supply the service was $48 000. Justice Company records the service fee revenue as:

A) DR Cash $60 000 CR Fee revenue $60 000
B) DR Cash $48 000 CR Fee revenue $48 000
C) DR Cash $30 000 CR Fee revenue $30 000
D) DR Cash $24 000 CR Fee revenue $24 000

Question 16

Three joint operators are involved in a joint operation that manufactures fishing boats. At the beginning of the year the joint operation held $45 000 in cash. During the year the joint operation incurred the following expenses: Wages paid $60 000, Overheads accrued $20 000. Additionally, creditors amounting to $45 000 were paid and the joint operators contributed $27 500 cash each to the joint operation. The balance of cash held by the joint operation at the end of the year is:

A) $2 500
B) $42 500
C) $25 000
D) $22 500

Question 17

Jensen Ltd and Harris Ltd have established the JH Joint Operation. Jensen Ltd has a 75% interest in the joint operation and Harris Ltd has a 25% interest. Jensen Ltd contributed an asset with a carrying amount of $130 000 and a fair value of $150 000 and Harris Ltd agreed to provide technical services to the joint operation over the first two years of operations. The fair value of the technical services was agreed to be $50 000 and the cost to provide the services was estimated at $45 000 at the inception of the joint operation.
As part of its initial contribution entry Harris Ltd will record a:

A) DR Plant in JO $12 500.
B) DR Services receivable in JO $45 000.
C) CR Gain on provision of services $5 000.
D) CR Obligation to JO $33 750.

Question 18

Harry Limited and Potter Limited agreed to form a joint operation to offer health services. To start the operation the joint operators agreed to contribute cash of $100 000 each. The joint operation will record which of the following entries to recognise this event?

A) DR Joint operator contributions $200 000 CR Cash $200 000
B) DR Cash $200 000 CR Joint operator contributions $200 000
C) DR Venturer's equity - Harry $100 000 DR Venturer's equity - Potter $100 000
CR Cash $200 000
D) DR Cash $200 000 CR Joint operation contribution - Harry $100 000
CR Joint operation contribution - Potter $100 000

Question 19

In relation to the supply of a service to a joint operation by one of the joint operators, which of the following statements is correct?

A) A joint operator can recognise 100% of the earnings through the supply of services to the joint operation.
B) A joint operator cannot earn a profit on supplying services to itself.
C) A joint operator is entitled to recognise a profit from the supply of services to itself.
D) A joint operator is not able to recognise the service revenue or service cost for the services supplied to the joint operation.

Question 20

Jack Limited and Beanstalk Limited formed a joint operation and share in the output of the joint operation 60:40. The joint operation paid a management fee of $42 000 to Jack Limited during the current period. The cost to Jack Limited of supplying the management service was $35 000. Jack Limited records the management fee revenue as follows:

A) DR Cash $42 000 CR Fee revenue $42 000
B) DR Cash $35 000 CR Fee revenue $35 000
C) DR Cash $28 000 CR Fee revenue $28 000
D) DR Cash $7 000 CR Fee revenue $7 000

Question 21

On 1 July 2023, Perth Ltd entered into a 50:50 joint operation with Hobart Ltd to develop robotic home appliances. Each operator's initial contribution was $1 million. Perth contributed $500 000 cash and equipment with a fair value of $500 000 and a book value of $400 000. The remaining useful life of the equipment contributed by Perth is 5 years. Tasmania Ltd contributed $1 million cash. Additional information:
An extract of the joint operation's balance sheet at 30 June 2024 shows:
$\begin{array}{lr}\text { Assets }&\$\\\text { Cash } & 290,000 \\\text { Raw materials } & 80,000 \\\text { Work in progress } & 460,000 \\\text { Finished goods inventories } & 100,000 \\\text { Equipment } & 500,000 \\\text { less: Accumulated depreciation } & -100,000\\\text { Total Assets }&1,330,000\\\text { Liabilities }\\\text { Accrued wages } & 40,000 \\\text { Accounts payable } & 140,000 \\\text { Total Liabilities } & \$ 180,000 \\\text { Net Assets } & \mathbf{1 , 1 5 0 , 0 0 0}\end{array}$ Production costs for the joint operation for the year ended 30 June 2024 were:
$\begin{array}{lr}\text { Raw materials } & \$ 420,000 \\\text { Wages } & 340,000 \\\text { Depreciation } & 100,000 \\\text { Overhead expenses } & 550,000\\\text { Total production costs } & 1,410,000 \\\text { Less Cost of inventories } & -950,000 \\ \text { Work in Progress at 30 June 2024 } & \$ 460,000\end{array}$ Cash receipts and payments for the year ended 30 June 2024 were:
$\begin{array}{lr}&\text { Payments }&\text { Receipts }\\\text { Contributions }&&\$1,500,000\\\text { Wages } & \$ 300,000 \\\text { Raw materials } & 360,000 \\\text { Overhead expenses } & 550,000\\&\$1,210,000&\$1,500,000\end{array}$ Tasmania Ltd's initial contribution entry will include a debit to the Cash in JO account of:

A) $750 000.
B) $1 000 000.
C) $1 500 000.
D) $2 000 000.

Question 22

When eliminating any unrealised profit arising when a joint operator provides services to a joint operation the profit is eliminated against:

A) retained earnings.
B) cost of goods sold.
C) the investment in the joint operation.
D) work in progress, finished goods and other inventories related accounts.

Question 23

On 1 July 2023, the North & South Joint Operation was established. The two joint operators participating in this arrangement, North Ltd and South Ltd, share control equally. Both joint operators contributed cash to establish the joint operation. The joint operation holds equipment with a carrying amount of $600 000. Both joint operators depreciate equipment using the straight-line method and the depreciation is regarded as a cost of production. The equipment has a useful life of 5 years. At 30 June 2024 North Ltd had sold all of the inventories distributed to it and South Ltd had sold 50% of the inventories distributed to it. At 30 June 2024 South Ltd must recognise the following entry, in relation to depreciation, in its records:

A) DR Inventories $30 000.
B) DR Depreciation expense $120 000.
C) DR Cost of goods sold $120 000.
D) DR Accumulated depreciation $60 000.

Question 24

On 1 July 2023 Perth Ltd entered into a 50:50 joint operation with Hobart Ltd to develop robotic home appliances. Each operator's initial contribution was $1 million. Perth contributed $500 000 cash and equipment with a fair value of $500 000 and a book value of $400 000. The remaining useful life of the equipment contributed by Perth is 5 years. Tasmania Ltd contributed $1 million cash. Additional information:
An extract of the joint operation's balance sheet at 30 June 2024 shows:
$\begin{array}{lr}\text { Assets }&\$\\\text { Cash } & 290,000 \\\text { Raw materials } & 80,000 \\\text { Work in progress } & 460,000 \\\text { Finished goods inventories } & 100,000 \\\text { Equipment } & 500,000 \\\text { less: Accumulated depreciation } & -100,000\\\text { Total Assets }&1,330,000\\\text { Liabilities }\\\text { Accrued wages } & 40,000 \\\text { Accounts payable } & 140,000 \\\text { Total Liabilities } & \$ 180,000 \\\text { Net Assets } & \mathbf{1 , 1 5 0 , 0 0 0}\end{array}$ Production costs for the joint operation for the year ended 30 June 2024 were:
$\begin{array}{lr}\text { Raw materials } & \$ 420,000 \\\text { Wages } & 340,000 \\\text { Depreciation } & 100,000 \\\text { Overhead expenses } & 550,000\\\text { Total production costs } & 1,410,000 \\\text { Less Cost of inventories } & -950,000 \\\text { Work in Progress at 30 June 2024 } & \$ 460,000\end{array}$ Cash receipts and payments for the year ended 30 June 2024 were:
$\begin{array}{lr}&\text { Payments }&\text { Receipts }\\\text { Contributions }&&\$1,500,000\\\text { Wages } & \$ 300,000 \\\text { Raw materials } & 360,000 \\\text { Overhead expenses } & 550,000\\&\$1,210,000&\$1,500,000\end{array}$ The following entries will form part of Perth Ltd's initial contribution entry except for:

A) DR Cash in JO account $750 000.
B) DR Equipment in JO account $250 000.
C) CR Cash $500 000.
D) CR Gain on equipment $50 000.

Question 25

On 1 July 2023, Perth Ltd entered into a 50:50 joint operation with Hobart Ltd to develop robotic home appliances. Each operator's initial contribution was $1 million. Perth contributed $500 000 cash and equipment with a fair value of $500 000 and a book value of $400 000. The remaining useful life of the equipment contributed by Perth is 5 years. Tasmania Ltd contributed $1 million cash. Additional information:
An extract of the joint operation's balance sheet at 30 June 2024 shows:
$\begin{array}{lr}\text { Assets }&\$\\\text { Cash } & 290,000 \\\text { Raw materials } & 80,000 \\\text { Work in progress } & 460,000 \\\text { Finished goods inventories } & 100,000 \\\text { Equipment } & 500,000 \\\text { less: Accumulated depreciation } & -100,000\\\text { Total Assets }&1,330,000\\\text { Liabilities }\\\text { Accrued wages } & 40,000 \\\text { Accounts payable } & 140,000 \\\text { Total Liabilities } & \$ 180,000 \\\text { Net Assets } & \mathbf{1 , 1 5 0 , 0 0 0}\end{array}$ Production costs for the joint operation for the year ended 30 June 2024 were:
$\begin{array}{lr}\text { Raw materials } & \$ 420,000 \\\text { Wages } & 340,000 \\\text { Depreciation } & 100,000 \\\text { Overhead expenses } & 550,000\\\text { Total production costs } & 1,410,000 \\\text { Less Cost of inventories } & -950,000 \\\text { Work in Progress at 30 June 2024 } & \$ 460,000 \\\end{array}$ Cash receipts and payments for the year ended 30 June 2024 were:
$\begin{array}{lr}&\text { Payments }&\text { Receipts }\\\text { Contributions }&&\$1,500,000\\\text { Wages } & \$ 300,000 \\\text { Raw materials } & 360,000 \\\text { Overhead expenses } & 550,000\\&\$1,210,000&\$1,500,000\end{array}$ By 30 June 2024, Tasmania Ltd has sold all of the robotic appliances distributed to it by the joint operation and Perth has sold 60% of its distribution of robotic appliances. The value of these inventories sold by Perth Ltd is:

A) $255 000
B) $285 000
C) $425 000
D) $475 000

Question 26

When a joint operator is accounting for an interest in a joint operation it is required to recognise which of the following in its financial statements? $$\begin{array} { | l | c | c | c | c | } \hline & \text { I } & \text { II } & \text { III } & \text { IV } \\\hline \text { The assets that it controls } & \text { Yes } & \text { Yes } & \text { Yes } & \text { Yes } \\\hline \text { The liabilities that it incurs } & \text { No } & \text { Yes } & \text { No } & \text { Yes } \\\hline \begin{array} { l } \text { Its share of incorne from the sale of goods by the joint } \\\text { operation }\end{array} & \text { No } & \text { No } & \text { Yes } & \text { Yes } \\\hline \text { The expenses that it incurs } & \text { No }& \text { No } & \text { No } & \text { Yes } \\\hline\end{array}$$

A) I.
B) II.
C) III.
D) IV.