Question 1

Briefly summarise the key disclosure requirements for joint arrangements according to AASB 11.

Accepted Answer

AASB 11, which is the Australian equival

Question 2

An associate is an entity over which the investor has significant influence,which is not a subsidiary,but which may be a joint arrangement entity.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is in accordance with AASB 11Joint Arrangements?

Accepted Answer

A)  Investors in jointly controlled entities account for their investment under equity method if their ownership percentage exceeds 20 per cent. 
B)  The existence of a contractual arrangement distinguishes joint arrangements from investments in associates in which the investor has significant influence. 
C)  The contractual arrangement establishes joint control over the arrangement in such a way no single venturer is in a position to control the activity unilaterally. 
D)  Activities that have no contractual arrangement to establish joint control but in substance have established joint control are considered joint ventures for the purposes of AASB 11. 
A)  Investors in jointly controlled entities account for their investment under equity method if their ownership percentage exceeds 20 per cent. 
B)  The existence of a contractual arrangement distinguishes joint arrangements from investments in associates in which the investor has significant influence. 
C)  The contractual arrangement establishes joint control over the arrangement in such a way no single venturer is in a position to control the activity unilaterally. 
D)  Activities that have no contractual arrangement to establish joint control but in substance have established joint control are considered joint ventures for the purposes of AASB 11.

Question 4

Quartermain Limited has the following investments:
1)Christian Limited-a 100 per cent owned subsidiary
2)Hudson Limited-a 75 per cent owned subsidiary
3)Lane Limited-a 40 per cent owned associate
4)Daicos Limited-a 25 per cent owned associate
Lane Limited sells inventory,which cost Lane Limited $80 000 to acquire,to Hudson Limited,at a mark up of 25 per cent.A quarter of the inventory remains on hand at the end of the period.What is the amount to be eliminated in the consolidated accounts of Quartermain Group Limited?

Accepted Answer

A)  $4000 
B)  $2500 
C)  $2000 
D)  $5000 
A)  $4000 
B)  $2500 
C)  $2000 
D)  $5000

Question 5

Quartermain Limited has the following investments:
1)Christian Limited-a 100 per cent owned subsidiary
2)Hudson Limited-a 75 per cent owned subsidiary
3)Lane Limited-a 40 per cent owned associate
4)Daicos Limited- a 25 per cent owned associate
Lane Limited sells inventory,which cost Lane Limited $40 000 to acquire,to Christian Limited,at a mark up of 50 per cent.25 per cent of the inventory remains on hand at the end of the period.What is the amount to be eliminated in the consolidated accounts of Quartermain Group Limited?

Accepted Answer

A)  $4000 
B)  $2500 
C)  $2000 
D)  $5000 
A)  $4000 
B)  $2500 
C)  $2000 
D)  $5000

Question 6

An equity instrument is defined as:

Accepted Answer

A)  an agreement to exchange rights in an entity at an agreed price by a willing buyer and a willing seller in an arm's length transaction. 
B)  an arrangement in writing to transfer the risks and rights of ownership to the holder of the script in exchange for consideration in the form of payment in cash or kind. 
C)  any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. 
D)  an arrangement to ultimately settle in cash or by transferring a right to another financial asset to the holder within a specified time and at a specified value. 
A)  an agreement to exchange rights in an entity at an agreed price by a willing buyer and a willing seller in an arm's length transaction. 
B)  an arrangement in writing to transfer the risks and rights of ownership to the holder of the script in exchange for consideration in the form of payment in cash or kind. 
C)  any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. 
D)  an arrangement to ultimately settle in cash or by transferring a right to another financial asset to the holder within a specified time and at a specified value.

Question 7

AASB 128 requires that the investor's share of the post-acquisition profit or loss of its associates be adjusted for certain inter-entity transactions including:

Accepted Answer

A)  the associate's transactions with its own associates. 
B)  any transactions between the associate and a controlled entity of the investor. 
C)  any transactions between the associate and any other associates of the investor. 
D)  any transactions between the associate and a controlled entity of the investor and any transactions between the associate and any other associates of the investor. 
A)  the associate's transactions with its own associates. 
B)  any transactions between the associate and a controlled entity of the investor. 
C)  any transactions between the associate and any other associates of the investor. 
D)  any transactions between the associate and a controlled entity of the investor and any transactions between the associate and any other associates of the investor.

Question 8

On 30 June 2013,Perkins Ltd,Thorpe Ltd and Hackett Ltd entered into a joint operation to produce apparel and related products for the Australian national swimming team.The joint operators equally share in output and costs.On the same date,the recorded amounts of each joint operator's contributions are as follows: $$\begin{array} { | l | r | r | r | } 
\hline & \begin{array} { r } 
\text { Perkins Ltd } \
\text { (Machinery) }
\end{array} & \begin{array} { r } 
\text { Thorpe Ltd } \
\text { (Equipment) }
\end{array} & \begin{array} { r } 
\text { Hackett Ltd } \
\text { (Cash) }
\end{array} \
\hline \text { Historical cost } & \$ 900000 & \$ 600000 & - \
\hline \text { Accumulated depreciation } & \$ 200000 & \$ 100000 & - \
\hline \text { Agreed value } & \$ 600000 & \$ 600000 & \$ 600000 \
\hline
\end{array}$$ Assume that agreed values equal recoverable amount and no revaluations have occurred.
Which of the following combinations correctly indicates the effects on the statement of financial position and statement of financial performance of Hackett Ltd,respectively,after processing the journal entries to account for this joint operation arrangement?

Accepted Answer

A)  no change; no change 
B)  asset increase; profit increase 
C)  asset decrease; profit decrease 
D)  asset increase; profit decrease 
A)  no change; no change 
B)  asset increase; profit increase 
C)  asset decrease; profit decrease 
D)  asset increase; profit decrease

Question 9

Where an entity holds a controlling equity interest in another entity it may choose to account for that interest using the equity method of accounting.

Accepted Answer

A) True 
 B)False

Question 10

In determining the existence of 'significant influence',and considering voting power,consideration must be given to:

Accepted Answer

A)  the voting power directly related to the voting rights attaching to the equity interests. 
B)  the distribution of the balance of the voting power. 
C)  excluding voting power that applies only in contingent circumstances. 
D)  the voting power directly related to the voting rights attaching to the equity interests; the distribution of the balance of the voting power; and excluding voting power that applies only in contingent circumstances. 
A)  the voting power directly related to the voting rights attaching to the equity interests. 
B)  the distribution of the balance of the voting power. 
C)  excluding voting power that applies only in contingent circumstances. 
D)  the voting power directly related to the voting rights attaching to the equity interests; the distribution of the balance of the voting power; and excluding voting power that applies only in contingent circumstances.

Question 11

Dixie Ltd acquired a 20 per cent interest in Jazz Ltd on 1 July 2013 for a cash consideration of $366 000.It has a sufficient balance of voting rights in Jazz Ltd to give it significant influence in its operating and financing decisions.Jazz's assets and liabilities were recorded at fair value at the time of purchase and were represented by equity as follows: $$\begin{array} { | l | r | } 
\hline \text { Share capital } & 1000000 \
\hline \text { Retained earnings } & \underline { 830000 } \
\hline \text { Total shareholders' funds } & \underline {1830000} \
\hline
\end{array}$$ During the period ended 30 June 2014 the following events occurred:
Jazz had an after-tax profit of $348 000.
Jazz proposed a dividend out of pre-acquisition profits of $25 000.
Later in the period Jazz paid the $25 000 dividend and declared a further $25 000 dividend out of post-acquisition profits.This dividend will not be paid until the following period.
Dixie Ltd accrues the dividends of associates as revenue when they are proposed.What is the amount of the investment in Jazz Ltd and income that will be recorded in the books of Dixie Ltd as at 30 June 2014 under (i)the cost method and (ii)the equity method?

Accepted Answer

A)  (i) Investment in Jazz Ltd $366 000; income $5000 (ii) Investment in Jazz Ltd $385 600; income $69 600 
B)  (i) Investment in Jazz Ltd $366 000; income $10 000 (ii) Investment in Jazz Ltd $306 400; income $10 000 
C)  (i) Investment in Jazz Ltd $366 000; income $10 000 (ii) Investment in Jazz Ltd $435 600; income $79 600 
D)  (i) Investment in Jazz Ltd $361 000; income $5000 (ii) Investment in Jazz Ltd $425 600; income $69 600 
A)  (i) Investment in Jazz Ltd $366 000; income $5000 (ii) Investment in Jazz Ltd $385 600; income $69 600 
B)  (i) Investment in Jazz Ltd $366 000; income $10 000 (ii) Investment in Jazz Ltd $306 400; income $10 000 
C)  (i) Investment in Jazz Ltd $366 000; income $10 000 (ii) Investment in Jazz Ltd $435 600; income $79 600 
D)  (i) Investment in Jazz Ltd $361 000; income $5000 (ii) Investment in Jazz Ltd $425 600; income $69 600

Question 12

If a joint venture is deemed to be a reporting entity according to terms contained in the AASB Conceptual Framework,then general purpose financial reports that comply with the relevant accounting standards may need to be prepared.

Accepted Answer

A) True 
 B)False

Question 13

Eagle Ltd is the ultimate parent entity in a group of companies.On 1 July 2013 Eagle Ltd acquired 30 per cent of the issued capital of Sparrow Ltd for a cash consideration of $366 000.At the date of acquisition the net assets of Sparrow Ltd are recorded at fair value and are represented by equity as follows: $$\begin{array} { | l | r | } 
\hline \text { Share capital } & 820000 \
\hline \text { Retained earnings } & \underline{400000} \
\hline \text { Total shareholders' equity } & \underline{1220000} \
\hline
\end{array}$$ Additional information:
During the financial year ending 30 June 2014 Sparrow Ltd makes a profit before tax of $140 000 and an after-tax profit of $89 000.
Sparrow Ltd proposed a dividend of $20 000 for the 2013/2014 period that will be paid early in the next period.
Eagle Ltd does not recognise dividends proposed by associates until they are paid.
During the year ended 30 June 2014 Sparrow made inter-entity sales to members of Eagle's economic group.These include:
Sparrow sold inventory to Peregrin Ltd,an 80 per cent owned subsidiary of Eagle Ltd.The inventory cost Sparrow $8000 and was sold to Peregrin for $12 000.Half of that inventory is still on hand in Peregrin at the end of the period.
Sparrow sold inventory to Seagull Ltd,a 25 per cent owned associate of Eagle's.The inventory cost Sparrow $10 000 and was sold to Seagull for $15 000.Forty per cent of this inventory is still on hand in Seagull at the end of the period.
The tax rate is 30 per cent.
What consolidated journal entry(ies)is(are)required to equity account for Eagle's interest in Sparrow Ltd for the period ended 30 June 2014?

Accepted Answer

A) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Investment in Sparrow Ltd } & 25860 & \
\hline \mathrm { Cr } & \text { Share of associate's profit } & & 25860 \
\hline\
\hline \mathrm { Dr } & \text { Dividend revenue } & 6000 & \
\hline \mathrm { Cr } & \text { Investment in Sparrow Ltd } & &6000  \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Investment in Sparrow Ltd } & 25860 & \
\hline \mathrm { Cr } & \text { Share of associate's profit } & & 25860 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | c | l | r | r | } 
\hline \mathrm { Dr } & \text { Investment in Sparrow Ltd } & 26297 & \
\hline \mathrm { Cr } & \text { Share of associate's profit } & & 26297 \
\hline & & & \
\hline \mathrm { Dr } & \text { Dividend revenue } & 6000 & \
\hline \mathrm { Cr } & \text { Investment in Sparrow Ltd } & & 6000 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Investment in Sparrow Ltd } & 366000 & \
\hline \mathrm { Cr } & \text { Share capital } & & 246000 \
\hline \mathrm { Cr } & \text { Retained earnings } & & 120000 \
\hline\
\hline \mathrm { Dr } & \text { Investment in Sparrow Ltd } & 26700 & \
\hline \mathrm { Cr } & \text { Share of associate's profit } & & 26700 \
\hline & & & \
\hline \mathrm { Dr } & \text { Dividend revenue } & 6000 & \
\hline \mathrm { Cr } & \text { Investment in Sparrow Ltd } & &6000  \
\hline
\end{array}$$ 
A) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Investment in Sparrow Ltd } & 25860 & \
\hline \mathrm { Cr } & \text { Share of associate's profit } & & 25860 \
\hline\
\hline \mathrm { Dr } & \text { Dividend revenue } & 6000 & \
\hline \mathrm { Cr } & \text { Investment in Sparrow Ltd } & &6000  \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Investment in Sparrow Ltd } & 25860 & \
\hline \mathrm { Cr } & \text { Share of associate's profit } & & 25860 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | c | l | r | r | } 
\hline \mathrm { Dr } & \text { Investment in Sparrow Ltd } & 26297 & \
\hline \mathrm { Cr } & \text { Share of associate's profit } & & 26297 \
\hline & & & \
\hline \mathrm { Dr } & \text { Dividend revenue } & 6000 & \
\hline \mathrm { Cr } & \text { Investment in Sparrow Ltd } & & 6000 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Investment in Sparrow Ltd } & 366000 & \
\hline \mathrm { Cr } & \text { Share capital } & & 246000 \
\hline \mathrm { Cr } & \text { Retained earnings } & & 120000 \
\hline\
\hline \mathrm { Dr } & \text { Investment in Sparrow Ltd } & 26700 & \
\hline \mathrm { Cr } & \text { Share of associate's profit } & & 26700 \
\hline & & & \
\hline \mathrm { Dr } & \text { Dividend revenue } & 6000 & \
\hline \mathrm { Cr } & \text { Investment in Sparrow Ltd } & &6000  \
\hline
\end{array}$$

Question 14

Businesses invest in the marketable securities of other entities for the short-term because:

Accepted Answer

A)  Using cash to purchase marketable securities improves the current ratio, loosening debt covenant restrictions. 
B)  It is an effective way to manage cash surpluses so that the investment may be turned into cash at short notice. 
C)  A diversified portfolio of marketable securities is less risky than having cash on deposit. 
D)  Using cash to purchase marketable securities improves the current ratio, loosening debt covenant restrictions and it is an effective way to manage cash surpluses so that the investment may be turned into cash at short notice. 
A)  Using cash to purchase marketable securities improves the current ratio, loosening debt covenant restrictions. 
B)  It is an effective way to manage cash surpluses so that the investment may be turned into cash at short notice. 
C)  A diversified portfolio of marketable securities is less risky than having cash on deposit. 
D)  Using cash to purchase marketable securities improves the current ratio, loosening debt covenant restrictions and it is an effective way to manage cash surpluses so that the investment may be turned into cash at short notice.

Question 15

As prescribed in AASB 11 Joint Arrangements,where a separate entity is formed the joint arrangement is always referred to as a joint operation.

Accepted Answer

A) True 
 B)False

Question 16

Discuss the accounting treatment for a joint venture as prescribed in AASB 128 Investments in Associates and Joint Ventures.

Accepted Answer

If a party has joint control of an entit

Question 17

Bush Ltd and Forest Ltd enter into a contractual agreement to form a joint arrangement which is considered to be a joint operation on 1 July 2014.Bush Ltd is to contribute land and equipment.Forest Ltd agrees to contribute $5.1 million in cash.It is agreed that they will share output,assets and future contributions in the ratio 70: 30 (Bush/Forest).The following information relates to the contribution by Bush Ltd:
$$\begin{array} { | l | r | r | } 
\hline & \begin{array} { r } 
\text { Book value } \
( \$ 000 )
\end{array} & \begin{array} { r } 
\text { Fair value (agreed) } \
( \$ 000 )
\end{array} \
\hline \text { Land } & 6000 & 6800 \
\hline \text { Equipment } & 4500 & 5100 \
\hline
\end{array}$$ The following information relates to the year ending 30 June 2015:
Total cost of production of $5 000 000.These costs have been deferred in order to amortise them as production commences.
Of the total costs of production all but $1 000 000 have been paid in cash.
The joint venture manager called on the venturers to contribute a further $4 500 000 in total with each venturer contributing the appropriate portion according to their share in the joint operation.
What entries would be required to record the formation of the joint operation and the transactions for the year ended 30 June 2014?

Accepted Answer

A) 
Bush Ltd's books:
$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 )\
\hline \mathrm { Dr } & Investment ~in~ JO & 3150 & \
\hline \mathrm { Cr } & Land & & 1800 \
\hline \mathrm { Cr } & Equipment & & 1350 \
\hline & & & \
\hline \mathrm { Dr } & Deferred ~costs & 3500 & \
\hline \mathrm { Dr } & Cash & 350 & \
\hline \mathrm { Cr } & Accounts ~payable & & 700 \
\hline \mathrm { Cr } & Investment~ in~ JO & & 3150 \
\hline & & & \
\hline
\end{array}\\
\text{Forest Ltd's books:}\
\begin{array} { | c | l | r | r | } 
\hline \mathrm { Dr } & Investment~ in~ JO & 3570 & \
\hline \mathrm { Cr } & Land & & 2040 \
\hline \mathrm { Cr } & Equipment & & 1530 \
\hline & & & \
\hline \mathrm { Dr } & Deferred~ costs & 1500 & \
\hline \mathrm { Dr } & Cash & 150 & \
\hline \mathrm { Cr } & Accounts~ payable & & 300 \
\hline \mathrm { Cr } & Investment ~in ~JO & & 1350 \
\hline
\end{array}$ 
B) 
  
C) 
  
D) 
  
A) 
Bush Ltd's books:
$\begin{array} { | l | l | r | r | } 
\hline & & ( \$ 000 ) & ( \$ 000 )\
\hline \mathrm { Dr } & Investment ~in~ JO & 3150 & \
\hline \mathrm { Cr } & Land & & 1800 \
\hline \mathrm { Cr } & Equipment & & 1350 \
\hline & & & \
\hline \mathrm { Dr } & Deferred ~costs & 3500 & \
\hline \mathrm { Dr } & Cash & 350 & \
\hline \mathrm { Cr } & Accounts ~payable & & 700 \
\hline \mathrm { Cr } & Investment~ in~ JO & & 3150 \
\hline & & & \
\hline
\end{array}\\
\text{Forest Ltd's books:}\
\begin{array} { | c | l | r | r | } 
\hline \mathrm { Dr } & Investment~ in~ JO & 3570 & \
\hline \mathrm { Cr } & Land & & 2040 \
\hline \mathrm { Cr } & Equipment & & 1530 \
\hline & & & \
\hline \mathrm { Dr } & Deferred~ costs & 1500 & \
\hline \mathrm { Dr } & Cash & 150 & \
\hline \mathrm { Cr } & Accounts~ payable & & 300 \
\hline \mathrm { Cr } & Investment ~in ~JO & & 1350 \
\hline
\end{array}$ 
B) 
  
C) 
  
D)

Question 18

A joint venture is defined in AASB 11 as:

Accepted Answer

A)  an arrangement whereby two or more parties carry on business with a common goal to make a profit and each can commit the joint venture to debts through decisions made unilaterally. 
B)  an arrangement whereby two or more venturers establish a common activity in which they jointly and severally take responsibility for liabilities and expenses and obtain the benefits of outputs generated. 
C)  a legal entity constituted by venturers pursuing a common goal and sharing control of assets and responsibility for expenses and liabilities. 
D)  a joint arrangement whereby two or more parties undertake an economic activity that is subject to joint control and have rights to the net assets of the arrangement. 
A)  an arrangement whereby two or more parties carry on business with a common goal to make a profit and each can commit the joint venture to debts through decisions made unilaterally. 
B)  an arrangement whereby two or more venturers establish a common activity in which they jointly and severally take responsibility for liabilities and expenses and obtain the benefits of outputs generated. 
C)  a legal entity constituted by venturers pursuing a common goal and sharing control of assets and responsibility for expenses and liabilities. 
D)  a joint arrangement whereby two or more parties undertake an economic activity that is subject to joint control and have rights to the net assets of the arrangement.

Question 19

A joint venture is where the parties to the joint arrangement have joint control over the rights to the net assets of the arrangement.

Accepted Answer

A) True 
 B)False

Question 20

Accounting for investments in associates are within the scope of AASB 121 Investments in Associates and Joint Ventures.

Accepted Answer

A) True 
 B)False

Exam 31: Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Briefly summarise the key disclosure requirements for joint arrangements according to AASB 11.

An associate is an entity over which the investor has significant influence,which is not a subsidiary,but which may be a joint arrangement entity.

Which of the following statements is in accordance with AASB 11Joint Arrangements?

An equity instrument is defined as:

AASB 128 requires that the investor's share of the post-acquisition profit or loss of its associates be adjusted for certain inter-entity transactions including:

Where an entity holds a controlling equity interest in another entity it may choose to account for that interest using the equity method of accounting.

In determining the existence of 'significant influence',and considering voting power,consideration must be given to:

If a joint venture is deemed to be a reporting entity according to terms contained in the AASB Conceptual Framework,then general purpose financial reports that comply with the relevant accounting standards may need to be prepared.

Businesses invest in the marketable securities of other entities for the short-term because:

As prescribed in AASB 11 Joint Arrangements,where a separate entity is formed the joint arrangement is always referred to as a joint operation.

Discuss the accounting treatment for a joint venture as prescribed in AASB 128 Investments in Associates and Joint Ventures.

A joint venture is defined in AASB 11 as:

A joint venture is where the parties to the joint arrangement have joint control over the rights to the net assets of the arrangement.

Accounting for investments in associates are within the scope of AASB 121 Investments in Associates and Joint Ventures.

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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