Exam 32: Joint Arrangements

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:

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

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?

Which of the following statements is incorrect?

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:

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?

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

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:

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:

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: Assets \ Cash 290,000 Raw materials 80,000 Work in progress 460,000 Finished goods inventories 100,000 Equipment 500,000 less: Accumulated depreciation -100,000 Total Assets 1,330,000 Liabilities Accrued wages 40,000 Accounts payable 140,000 Total Liabilities \ 180,000 Net Assets Production costs for the joint operation for the year ended 30 June 2024 were: Raw materials \ 420,000 Wages 340,000 Depreciation 100,000 Overhead expenses 550,000 Total production costs 1,410,000 Less Cost of inventories -950,000 Work in Progress at 30 June 2024 \ 460,000 Cash receipts and payments for the year ended 30 June 2024 were: Payments Receipts Contributions \1 ,500,000 Wages \ 300,000 Raw materials 360,000 Overhead expenses 550,000 \1 ,210,000 \1 ,500,000 The following entries will form part of Perth Ltd's initial contribution entry except for:

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?

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:

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

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:

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:

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

The matters generally dealt with in a joint arrangement contract include the: I II III IV Activity, duration and reporting obligations Yes Yes Yes Yes Capital contribution of the venturers Yes Yes Yes No Sharing of the output, expenses or results Yes Yes No Yes Voting rights of the venturers Yes No No No

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: Assets \ Cash 290,000 Raw materials 80,000 Work in progress 460,000 Finished goods inventories 100,000 Equipment 500,000 less: Accumulated depreciation -100,000 Total Assets 1,330,000 Liabilities Accrued wages 40,000 Accounts payable 140,000 Total Liabilities \ 180,000 Net Assets Production costs for the joint operation for the year ended 30 June 2024 were: Raw materials \ 420,000 Wages 340,000 Depreciation 100,000 Overhead expenses 550,000 Total production costs 1,410,000 Less Cost of inventories -950,000 Work in Progress at 30 June 2024 \ 460,000 Cash receipts and payments for the year ended 30 June 2024 were: Payments Receipts Contributions \1 ,500,000 Wages \ 300,000 Raw materials 360,000 Overhead expenses 550,000 \1 ,210,000 \1 ,500,000 Tasmania Ltd's initial contribution entry will include a debit to the Cash in JO account of:

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 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: