A joint operation holds Equipment with a carrying amount of $1 200 000. The two joint operators participating in this arrangement share control equally. They also depreciate Equipment using the straight-line method. The Equipment has a useful life of 5 years. At reporting date each joint operator must recognise the following entry, in relation to depreciation, in its records:
A) DR Depreciation $240 000;
B) DR Depreciation $120 000;
C) DR Investment in joint operation $240 000;
D) DR Assets in joint operation $120 000.

Question

A joint operation holds Equipment with a carrying amount of $1 200 000. The two joint operators participating in this arrangement share control equally. They also depreciate Equipment using the straight-line method. The Equipment has a useful life of 5 years. At reporting date each joint operator must recognise the following entry, in relation to depreciation, in its records:
A)	DR	Depreciation			$240 000;
B)	DR	Depreciation			$120 000;
C)	DR	Investment in joint operation	$240 000;
D)	DR	Assets in joint operation	$120 000.

Quizplus · Accepted Answer

Each joint operator shares control equally, so they each have a 50% interest in the Equipment. Therefore, each operator should recognize 50% of the total depreciation expense, which is $240,000 over the 5-year useful life of the Equipment. Therefore, each operator should recognize $48,000 ($240,000/5 years) of depreciation expense per year. As such, the correct entry would be option B, which debits Depreciation for $120,000.

A Joint Operation Holds Equipment with a Carrying Amount of $1