The following information relates to Questions
A Ltd and B Ltd have established the AB Joint Operation. A Ltd has a 60% interest in the joint operation and B Ltd has a 40% interest.

A Ltd contributed an asset with a carrying amount of $90,000 and a fair value of $120,000 and B 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 $80,000 and the cost to provide the services was estimated at $65,000 at the inception of the joint operation.

-As part of its initial contribution entry A Ltd will record a:
A) Debit against the Services Receivable in JO account of $32,000;
B) Debit against the Plant in JO account of $54,000;
C) Credit against the Plant of $120,000;
D) Credit against the Gain on Sale of Plant of $18,000.

Question

The following information relates to Questions
A Ltd and B Ltd have established the AB Joint Operation.  A Ltd has a 60% interest in the joint operation and B Ltd has a 40% interest.

A Ltd contributed an asset with a carrying amount of $90,000 and a fair value of $120,000 and B 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 $80,000 and the cost to provide the services was estimated at $65,000 at the inception of the joint operation.

-As part of its initial contribution entry A Ltd will record a:
A) Debit against the Services Receivable in JO account of $32,000;
B) Debit against the Plant in JO account of $54,000;
C) Credit against the Plant of $120,000;
D) Credit against the Gain on Sale of Plant of $18,000.

Quizplus · Accepted Answer

The entry represents A Ltd selling plant (a non-current asset) to JO for $54,000. Therefore, A Ltd will debit its Plant in JO account for $54,000. The other options are incorrect since there is no reference to Services Receivable, a credit to Plant or a Gain on Sale of Plant in the scenario presented.

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