Which of the following statements is correct? All joint arrangements which are not structured through a separate vehicle are classified as joint ventures. 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. 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. 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.
Multiple Choice Questions
- Which of the following statements is correct?
- All joint arrangements which are not structured through a separate vehicle are classified as joint ventures.
- 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.
- 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.
- 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.
- 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:
- DR Building in JO $75 000
CR Building $75 000
- DR Building in JO $945000
CR Building $37 500
CR Gain on sale of building $7 500
- DR Investment in joint operation $45 000
CR Building $37 500
CR Gain on sale of building $7 500
- DR Cash in JO $45 000
DR Building in JO $45 000
CR Building $75 000
CR Gain on sale of building $15 000
Q3-5 are based on the information as follows:
On 1 July 2023 Perth Ltd entered into a 50:50 joint operation with Tasmania 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 |
-100,000 |
|
Total Assets |
1,330,000 |
|
Liabilities |
|
|
Accrued wages |
40,000 |
|
Accounts payable |
140,000 |
|
Total Liabilities |
$180,000 |
|
Net Assets |
1,150,000 |
Production costs for the joint operation for the year ended 30 June 2024 were:
|
Raw materials |
$420,000 |
|
Wages |
340,000 |
|
Depreciation |
100,000 |
|
|
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:
- DR Cash in JO account $750 000.
- DR Equipment in JO account $250 000.
- CR Cash $500 000.
- CR Gain on equipment $50 000.
- Tasmania Ltd’s initial contribution entry will include a debit to the Cash in JO account of:
- $750 000.
- $1 000 000.
- $1 500 000.
- $2 000 000.
- 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:
- $255 000
- $285 000
- $425 000
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