Deck 24: Investments in Joint Arrangements

Question 1

Crazy Limited and Frog Limited formed a joint operation and share in the output of the joint operation 60:40.The joint operation paid a management fee of $40 000 to Crazy Limited during the current period.The cost to Crazy Limited of supplying the management service was $28 000.The amount of profit that Crazy Limited will recognise in relation to the provision of the management fee to the joint operation is:

A)nil.
B)$4800.
C)$7200.
D)$12 000.

Answer 1

B

Question 2

On 1 July 2010,the Ears & Eyes Joint Operation was established.The two joint operators participating in this arrangement,Ears Ltd and Eyes Ltd,share control equally.Both joint operators contributed cash to establish the joint operation.The joint operation holds equipment with a carrying amount of $1 200 000.Both joint operators depreciate equipment using the straight-line method and the depreciation is regarded a cost of production.The equipment has a useful life of 5 years.At 30 June 2011,Ears Ltd had sold all of the inventory distributed to it and Eyes Ltd had sold 50% of the inventory distributed to it.At 30 June 2011,Eyes must recognise which of the following entries,in relation to depreciation,in its records?

A)DR Depreciation expense $240 000
B)DR Accumulated depreciation $120 000
C)DR Inventory $60 000
D)DR Cost of goods sold $120 000

Answer 2

C

Question 3

According to AASB 11 Joint Arrangements,joint control exists where:

A)no single party is in a position to control the activity unilaterally.
B)the decisions in areas essential to the goals of the joint arrangement do not require the consent of the parties.
C)no one party may be appointed as the manager of the joint arrangement.
D)one party alone has power to control the strategic operating decisions of the joint arrangement.

Answer 3

A

Question 4

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

A)the investment in the joint operation.
B)fee revenue.
C)work in progress,finished goods and other inventory related accounts.
D)cash in JO.

Question 5

Ally Ltd and Cat Ltd have established the Ally Cat Joint Operation.Ally Ltd has a 60% interest in the joint operation and Cat Ltd has a 40% interest.
Ally Ltd contributed an asset with a carrying amount of $180 000 and a fair value of $240 000 and Cat 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 $160 000 and the cost to provide the services was estimated at $130 000 at the inception of the joint operation.
As part of its initial contribution entry Ally Ltd will record a:

A)debit against the services receivable in JO account of $64 000.
B)debit against the plant in JO account of $108 000.
C)credit against the plant of $240 000.
D)credit against the gain on sale of plant of $36 000.

Question 6

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 which of the following entries in its records in relation to depreciation?

A)DR Depreciation expense $240 000
B)DR Depreciation expense $120 000
C)DR Investment in joint operation $240 000
D)DR Assets in joint operation $120 000

Question 7

Accounting for a joint venture is done by application of the:

A)equity method.
B)fair value method.
C)consolidation method.
D)present value method.

Question 8

Ally Ltd and Cat Ltd have established the Ally Cat Joint Operation.Ally Ltd has a 60% interest in the joint operation and Cat Ltd has a 40% interest.
Ally Ltd contributed an asset with a carrying amount of $180 000 and a fair value of $240 000 and Cat 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 $160 000 and the cost to provide the services was estimated at $130 000 at the inception of the joint operation.
As part of its initial contribution entry Cat Ltd will record a:

A)debit against the services receivable in JO account of $64 000.
B)debit against the plant in JO account of $72 000.
C)credit against the obligation to JO of $78 000.
D)credit against the gain on provision of services of $12 000.

Question 9

Three joint operators are involved in a joint operation that manufactures mining equipment.At the beginning of the year the joint operation held $100 000 in cash.During the year,the joint operation paid wages of $40 000.Additionally,creditors amounting to $80 000 were paid and the joint operators contributed $30 000 cash each to the joint operation.The balance of cash held by the joint operation at the end of the year is:

A)$10 000.
B)$50 000.
C)$70 000.
D)$150 000.

Question 10

If the joint arrangement is not structured through a separate vehicle,the arrangement is classified as a:

A)joint venture.
B)joint vehicle.
C)joint operation.
D)joint structure.

Question 11

Each joint operator must recognise in its own accounts:

A)its expenses incurred in construction of a joint product.
B)its share of any jointly held liabilities.
C)its share of any expenses incurred by the joint operation.
D)all of the above.

Question 12

Which of the following statements is incorrect?

A)Joint arrangements can be classified into joint operations and joint ventures.
B)A joint arrangement has two main characteristics.
C)Joint arrangements are always structured as companies.
D)The key feature of a joint arrangement is that the parties involved have joint control over the decision making in relation to the joint arrangement.

Question 13

On 1 July 2010,Sunday Ltd entered into a 50:50 joint operation with Night Ltd to develop an open cut coal mine in central Queensland.Each operator's initial contribution was $4 million.Sunday contributed $2 million cash and equipment with a fair value of $2 million and a book value of $1 000 000.Night contributed $4 million cash.
Additional information
$\bullet$ Production costs for the JO for the year ended 30 June 2011 were as follows.

$\bullet$ The remaining useful life of the equipment contributed by Sunday is 5 years.
$\bullet$ Night is responsible for the day to day management of JO and has recognised the management fee received during the year as revenue.The costs of providing these management services to JO was $450 000.
$\bullet$ Night has sold all of the coal distributed to it and Sunday has sold 50% of the coal distributed to it by 30 June 2011.
An extract of JO's balance sheet at 30 June 2011 shows:

Night Ltd's initial contribution entry will include a debit to the Cash in JO account of:

A)$2 000 000.
B)$3 000 000.
C)$4 000 000.
D)$6 000 000.

Question 14

Which of the following statements is not correct in relation to joint control?

A)Joint control can exist without the existence of a contractual arrangement.
B)Joint control exists only where there is contractually agreed sharing of control.
C)Entities over which a party has joint control are accounted for in accordance with AASB 11 Joint Arrangements.
D)Joint control requires the unanimous consent of the parties sharing control.

Question 15

Which of the following statements is incorrect?

A)Accounting records do not need to be prepared for the joint operation itself.
B)Accounting for a joint venture is the same from that of a joint operation.
C)AASB 11 Joint Arrangements do not provide standards on accounting for the joint operation itself.
D)The statement of financial position is the joint operation's main financial statement.

Question 16

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?

A)A joint operator can recognise 100% of the earned through the supply of services to the joint operation.
B)A joint operator is entitled to recognise a profit from the supply of services to itself.
C)A joint operator cannot earn a profit on supplying services to itself.
D)It is uncommon for a joint operator to act in a management position for the joint operation.

Question 17

On 1 July 2010,Sunday Ltd entered into a 50:50 joint operation with Night Ltd to develop an open cut coal mine in central Queensland.Each operator's initial contribution was $4 million.Sunday contributed $2 million cash and equipment with a fair value of $2 million and a book value of $1 000 000.Night contributed $4 million cash.
Additional information
$\bullet$ Production costs for the JO for the year ended 30 June 2011 were as follows.

$\bullet$ The remaining useful life of the equipment contributed by Sunday is 5 years.
$\bullet$ Night is responsible for the day to day management of JO and has recognised the management fee received during the year as revenue.The costs of providing these management services to JO was $450 000.
$\bullet$ Night has sold all of the coal distributed to it and Sunday has sold 50% of the coal distributed to it by 30 June 2011.
An extract of JO's balance sheet at 30 June 2011 shows:

Which of the following will not form part of Sunday Ltd's initial contribution entry?

A)Debit against the cash in JO account of $3 000 000.
B)Debit against the equipment in JO account of $1 000 000.
C)Credit against the cash of $2 000 000.
D)Credit against the gain on equipment of $500 000.

Question 18

Which of the following statements is incorrect?

A)A joint operator contributing assets other than cash cannot transfer the asset at fair value to the joint operation and recognise a full profit on the transaction.
B)Where an operator contributes a non-current asset to a joint operation,the value of the contribution is the asset's historical cost.
C)If a joint operator supplies management services to the joint operation,it cannot earn a profit on supplying services to itself.
D)Where an operator contributes a non-current asset to a joint operation,the value of the contribution is effectively the non-current asset's fair value.

Question 19

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

A)dominating influence by one party over the other party.
B)control over the operating policies of one party by another party.
C)shared influence by two parties over the activities of another party.
D)joint control by the parties over the activities of an arrangement.

Question 20

The assessment of the rights and obligations in an arrangement requires the analysis of which of the following factors?
I II III IV
$\triangleright$ Legal form of the arrangement Yes Yes Yes Yes
$\triangleright$ Other relevant factors and circumstances Yes Yes Yes No
$\triangleright$ Structure of the arrangement No Yes Yes Yes
$\triangleright$ Terms agreed to by the parties in the contract No No Yes No

A)I
B)II
C)III
D)IV

Question 21

On 1 July 2010,Sunday Ltd entered into a 50:50 joint operation with Night Ltd to develop an open cut coal mine in central Queensland.Each operator's initial contribution was $4 million.Sunday contributed $2 million cash and equipment with a fair value of $2 million and a book value of $1 000 000.Night contributed $4 million cash.
Additional information
$\bullet$ Production costs for the JO for the year ended 30 June 2011 were as follows.

$\bullet$ The remaining useful life of the equipment contributed by Sunday is 5 years.
$\bullet$ Night is responsible for the day to day management of JO and has recognised the management fee received during the year as revenue.The costs of providing these management services to JO was $450 000.
$\bullet$ Night has sold all of the coal distributed to it and Sunday has sold 50% of the coal distributed to it by 30 June 2011.
An extract of JO's balance sheet at 30 June 2011 shows:

The value of inventory distributed to Sunday Ltd by the joint venture and subsequently sold by 30 June 2011 is:

A)$850 000.
B)$1 700 000.
C)$1 800 000.
D)$3 400 000.

Question 22

Disclosures for joint arrangements are covered by:

A)AASB 12 Disclosure of Interests in Other Entities.
B)AASB 10 Consolidated Financial Statements.
C)AASB 11 Joint Arrangements.
D)the Corporations Act 2001.

Question 23

When a joint operator is accounting for an interest in joint operation it is required to recognise which of the following in its financial statements?

A)I
B)II
C)III
D)IV