Solutions Manual: Company Accounting 10e

Solutions Manual
to accompany
Company Accounting 10e

prepared by
Ken Leo
John Hoggett
John Sweeting
Jeffrey Knapp
Sue McGowan
© John Wiley & Sons Australia, Ltd 2015

Solutions manual to accompany Company Accounting 10e
Chapter 24 – Joint arrangements
REVIEW QUESTIONS
1. What is a joint arrangement?
AASB 11 states:
4. A joint arrangement is an arrangement of which two or more parties have joint control.
5. A joint arrangement has the following characteristics:
(a) The parties are bound by a contractual arrangement (see paragraphs B2–B4).
(b) The contractual arrangement gives two or more of those parties joint control of the arrangement
(see paragraphs 7–13).
6. A joint arrangement is either a joint operation or a joint venture.
2. How does a joint arrangement differ from an associate?
An associate exists when an investor has significant influence over another entity.
A joint arrangement exists when an investor has joint control over another entity.
An investor does not need to have an arrangement with another entity in order to have significant
influence whereas to have joint control there must be two or more parties who have joint control.
3. What is meant by joint control?
See AASB 11 para 7 and Appendix A.

Joint control is the contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require the unanimous consent of the parties sharing
control. The key element of joint control is the sharing of control. In other words, there must be at
least two investors who have shared control of the investee.
4. How does joint control differ from control as used in classifying subsidiaries?
Under AASB 10:
An investor controls an investee when the investor is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the
investee.
There are three investor-investee relationships which are based on different levels of control:
Relationship Level of control

Parent - subsidiary Dominant control
Investor-associate Significant influence
Joint arrangement - investee Joint control
© John Wiley and Sons Australia Ltd 2015 24.2

Chapter 24: Joint arrangements
With a subsidiary there can be only one parent. With joint control there needs to be at least 2 entities
that share control.
5. How does a joint venture differ from a joint operation?
The classification of a joint arrangement into either a joint operation or a joint venture depends on the
rights and obligations of the parties to the arrangement.
A joint operation is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.
Those parties are called joint operators.
A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.
(AASB 11, paragraphs 15 and 16)
6. What are the key steps in classifying a joint arrangement into joint ventures and joint
operations?
The key element in the classification of a joint arrangement is the rights and obligations of the parties
to the arrangement. For a joint operation the rights pertain to the rights and obligations associated with
individual assets and liabilities, whereas with a joint venture, the rights and obligations pertain to the
net assets, that is the investment in net assets. See AASB 11 para 14.
The assessment of the classification of a joint arrangement requires judgement. The assessment of
the rights and obligations in an arrangement involves analysing four factors:
1. the structure of the arrangement
2. the legal form of the arrangement
3. the terms agreed to by the parties in the contractual arrangement, and
4. any other relevant facts and circumstances.
See AASB 11 para 17 and figures 24.3 and 24.5 in the text.
7. How are joint ventures accounted for?
With a joint venture, the joint venturers have an interest in the investment in the joint arrangement.
The accounting for this interest is done by application of the equity method in accordance with AASB
128 Investments in Associates and Joint Ventures.
8. How are joint operations accounted for?
The key feature of a joint operation is that the joint operator has an interest in the individual assets and
liabilities of the joint operation. In the situation where the joint operation produces an output which is
distributed to the joint operators, the joint operator will receive a share of the output of the joint
operation as well as be responsible for a share of the expenses of the operation that are not capitalised
into the cost of the output.
Hence each joint operator needs to recognise in itsown accounts:
(a) its share of any jointly held assets
(b) its share of any jointly held liabilities
(c) its revenue from the sale of any output received from the joint operation
(d) its share of any revenue from the sale of any product that is jointly constructed by the joint
operators
(e) its share of any expenses incurred by the joint operation
(f) its expenses incurred in construction of a joint product

CASE STUDIES
Case study 1 Classification of joint arrangements

In its 2012 annual report (p. 122), Paladin Energy Ltd disclosed the following policy note:
(p) Interests in Jointly Controlled Assets

The Group has interests in joint ventures that are jointly controlled assets. A joint venture is
a contractual arrangement whereby two or more parties undertake an economic activity that
is subject to joint control. A jointly controlled asset involves use of assets and other resources
of the venturers rather than establishment of a separate entity. The Group recognises its
interest in jointly controlled assets by recognising its interest in the assets and the liabilities
of the joint venture. The Group also recognises the expenses that it incurs and its share of the
income that it earns from the sale of goods or services by jointly controlled assets.
Required
Discuss whether Paladin is likely to have interests in joint ventures or joint operations.
The key phrase in this Note is “rather than establishment of a separate entity”.
One of the key elements of classification is whether or not the joint arrangement is structured through
a separate vehicle.
If a joint arrangement is NOT structured through a separate vehicle then the arrangement is classified
as a joint operation.
In this example, Paladin is likely to have interests in joint operations.
Paladin would recognise its share of any jointly controlled assets, liabilities revenues and expenses.
Note that Paladin recognises the expenses it incurs and its share of the income from the sale of goods
or services produced from the jointly controlled assets.
Case study 2 Classification of joint arrangements

In Note 1(b) of its annual report for the period ending 31 December 2012 (p. 148), Rio Tinto Ltd
reported that it had interests in both jointly controlled entities and jointly controlled assets and
that different accounting methods were used for these two items. The Note stated:
Jointly controlled entities (JCEs): A JCE is a joint venture that involves the establishment of a
corporation, partnership or other entity in which each venturer has a long term interest.
JCEs are accounted for using the equity accounting method.
Jointly controlled assets (JCAs): JCAs do not involve the establishment of a corporation,
partnership or other entity. A JCA is a joint venture in which the venturers have joint
control over the assets contributed to or acquired for the purposes of the joint venture. This
includes situations where the participants derive benefit from the joint activity through a
share of the production, rather than by receiving a share of the results of trading. The
Group’s proportionate interest in the assets, liabilities, revenues, expenses and cash flows of
JCAs are incorporated into the Group’s financial statements under the appropriate
headings.
Required
Write a report explaining the classification of joint arrangements and the need for different
accounting methods. Use the Rio Tinto Note to explain your answer.

Having determined that a joint arrangement exists it is then necessary to classify it. There are two
types of joint arrangements, namely joint ventures and joint operations:
- a joint operation: an arrangement in which the parties that have joint control have rights to the
assets and obligations for the liabilities relating to the arrangement. These parties are called joint
operators.
- a joint venture: the parties that have joint control have rights to the net assets of the arrangement.
These parties are called joint venturers.
The key element in the classification of a joint arrangement is the rights and obligations of the
parties to the arrangement. For a joint operation the rights pertain to the rights and obligations
associated with individual assets and liabilities, whereas with a joint venture, the rights and
obligations pertain to the net assets, that is the investment in net assets.
The assessment of the classification of a joint arrangement is not straight-forward, it requires
judgement. The assessment of the rights and obligations in an arrangement involves analysing four
factors:
1. the structure of the arrangement
2. the legal form of the arrangement
3. the terms agreed to by the parties in the contractual arrangement, and
4. any other relevant facts and circumstances.
Joint ventures are accounted for by using the equity method while a joint operation is accounted
for by the recognition of the joint operator’s share of the assets, liabilities, revenues and expenses of
the joint operation.
With Rio Tinto, the JCEs involve the establishment of a separate entity i.e. the joint arrangement is
structured through a separate vehicle. Note figure 29.2 in the text. The other 3 steps noted above then
have to be analysed to see if a joint venture exists. Rio Tinto classifies JCEs as joint ventures and
applies the equity method of accounting.
With JCAs, there is no separate vehicle established. Hence these are joint operations. These are
accounted for by recognition in the financial statements of the Group of the Group’s proportionate
share of the assets, liabilities, revenues, expenses and cash flows of the JCAs.
Case study 3 Classification of a joint arrangement
Falls Ltd and Creek Ltd decided to jointly undertake the manufacture of an electric car. They
formed Silver Ltd, which will manufacture the car. Falls Ltd and Creek Ltd provide the various
parts for the manufacture of the car, which is assembled by Silver Ltd.
Falls Ltd and Creek Ltd each hold 50% of the voting rights in Silver Ltd and receive 50% of
the cars produced by Silver Ltd. Falls Ltd and Creek Ltd then sell the cars in their own
geographic region. The constitution of Silver Ltd requires that the operations of the company
must be in accordance with a business plan prepared annually, and to which both Falls Ltd and
Creek Ltd both agree. Silver Ltd has six directors, with three being appointed by Falls Ltd and
three by Creek Ltd.
Required
Evaluate whether a joint arrangement exists and how it should be classified.
Does a joint arrangement exist?

A joint arrangement is an arrangement of which two or more parties have joint control. The two main
characteristics are:
- the parties are bound by a contractual arrangement, and
- the parties have joint control of the arrangement.

The contractual arrangement in this case would be the constitution of Silver Ltd which would set out
the rights and obligations of the owners, namely Falls Ltd and Creek Ltd.
Falls Ltd and Creek Ltd each hold 50% of the voting rights in Silver Ltd. In the absence of any other
agreement, this would mean that both parties would have to agree before any decision was made.
Note the existence of the business plan which requires joint agreement, and note further the structure
of the board – 3 directors from each company. Hence it would seem that joint control exists.
Hence a joint arrangement exists.
How should the joint arrangement be classified?
Note firstly that a separate entity, namely Silver Ltd, is established. Hence it could be either a joint
operation of a joint venture.
However, the other factor to consider is that Silver Ltd produces cars. These cars, as output, are
distributed to Falls Ltd and Creek Ltd who sell the cars in their own geographic regions. The profit is
then generated by the owners of Silver Ltd subsequent to the receipt of the output from the joint
arrangement. Silver Ltd does not make any profit or loss. It just produces output.
The parties to the joint arrangement then have a right to substantially all the economic benefits of
the assets held by the arrangement.
Another feature of such an arrangement is that, as a result of the decision to supply the output of
the joint arrangement to the parties themselves, there is no cash inflow to the joint arrangement from
the sale of the product. The joint arrangement relies solely on the parties to the arrangement for the
supply of cash to continue the operations of the arrangement as well as to pay for the liabilities
incurred by the arrangement. The parties themselves are then responsible for the liabilities of the
arrangement as the latter has no facility to be able to generate cash for the settlement of liabilities.
These forms of arrangement are generally classified as joint operations.
Case study 4 Joint operators as managers

In its 2012 annual report (p. 177) Paladin Energy Ltd supplied the following information:
The Angela Joint Venture is involved in the identification of and exploration for uranium
resources on tenements to the south of Alice Springs in the Northern Territory, Australia.
The joint venture is between Cameco Australia Pty Ltd (Cameco) 50% and Paladin NT
Pty Ltd (PNT) 50% (PNT is 100% owned by Paladin) with Paladin as manager and
operator of the joint venture.
Required
Discuss the possible accounting implications of one of the parties to the joint arrangement being
appointed as manager of the joint operation, including the situation where that party receives a
fee for the provision of such services.
The appointment of one of the entities as manager does not affect the classification of the joint
arrangement as it does not affect the joint control arrangement. The manager implements the jointly
agreed upon decisions.
Where one of the entities acts as manger it is common for the joint operation to pay a management fee
to the joint operator for its management services.

In accounting for these payments, the joint operation pays cash to a joint operator, with the cost of
the service being capitalised into work in progress and inventory produced by the joint operation. For
a joint operator that does not supply the service there are no accounting adjustments necessary
because of the transaction. For the joint venturer that does supply the service, normally it would incur
a cost to supply the service and earn a profit on the supply of that service. In accounting for its interest
in the joint operation, the operator supplying the service has to consider the following:
 As with supplying assets other than cash as part of the initial contribution, a joint operator
cannot earn a profit on supplying services to itself.
 As the joint operation capitalises the amount paid to the operator into the cost of work in
progress and inventory, an adjustment is necessary to the inventory related accounts of that
operator because the cost of these items to the operator supplying the services is less than that
to the other operator(s).
Case study 5 Existence and classification of a joint arrangement
The Chinese mining company Changchun Mining Ltd and the Australian mining company
Gold Rush Ltd have agreed to set up a separate company, Dragon Gold Ltd, to mine for gold in
Australia. The Australian government has issued permits to the Australian company to mine for
gold in specified areas of Australia.
The companies have set up a joint operating agreement which contains the following
provisions:
 The assets and liabilities of Dragon Rush Ltd are those of that company and not of the parties
owning shares in Dragon Rush Ltd.
 Dragon Rush Ltd has a board of directors that will consist of six persons, three provided by
each of Changchun Mining Ltd and Gold Rush Ltd. Each of these companies has a 50%
ownership in Dragon Rush Ltd. For any resolution to be passed by the board, there has to be
unanimous consent of all directors.
 Gold Rush Ltd will provide the management team for Dragon Rush Ltd for which a
management fee will be paid by Dragon Rush Ltd. However, all budget matters and work
programs have to be approved by the board of Dragon Rush Ltd.
 The rights and obligations arising from the exploration development and production activities
of Dragon Rush Ltd are to be shared by all parties to the joint arrangement. In particular, the
parties will share in the production obtained from the mining activities and all costs
associated with the work undertaken.
 If cash is required for ongoing mining activities, the board of Dragon Rush Ltd may make
calls on the parties owning shares in that company.
Required
Discuss whether a joint arrangement exists and whether it should be classified as a joint venture
or a joint operation.
Does a joint arrangement exist?

A joint arrangement is an arrangement of which two or more parties have joint control. The two main
characteristics are:
- the parties are bound by a contractual arrangement, and
- the parties have joint control of the arrangement.
In this example there is an agreement between Changchun Mining Ltd and Gold Rush Ltd.
The Board of Directors has 6 members with 3 from each company. There has to be unanimous
consent of all directors.
There is then a joint arrangement.
How is the joint arrangement classified?

The parties carry out the joint arrangement through a separate vehicle whose legal form confers
separation between the parties and the separate vehicle.
However, the parties have been able to reverse the initial assessment of their rights and obligations
arising from the legal form of the separate vehicle in which the arrangement is conducted. They have
done this by agreeing terms in the joint arrangement agreement that entitle them to rights to the assets
(eg exploration and development permits, production, and any other assets arising from the activities)
and obligations for the liabilities (eg all costs and obligations arising from the work programmes) that
are held in Dragon Gold Ltd. The joint arrangement is thus classified as a joint operation.
Both Changchun Mining Ltd and Gold Rush Ltd would recognise in their financial statements their
own share of the assets and of any liabilities resulting from the arrangement on the basis of their
agreed participating interest. On that basis, each party also recognises its share of the revenue (from
the sale of their share of the production) and its share of the expenses.
Case study 6 Classification of a joint arrangement
Two smaller banks that operate in Australia are the Ballarat Bank and the St Martins Bank.
These have in the past primarily offered domestic banking services to their customers. However
in recent times, these customers have made increasing demands for international currency
transactions and access to offshore banking arrangements. As both banks individually are not
prepared to undertake the risks associated with international operations on their own, they
have decided to join together to provide these services to their customers.
To this end, they have formed the Overseas Bank. This bank is regarded as a separate vehicle
in its own right, with the assets and liabilities of the Overseas Bank being those of the bank
itself. The Ballarat Bank and St Martins bank will each hold a 50% interest in the Overseas
Bank. These two banks have signed an agreement such that all major decisions in relation to the
Overseas Bank require the unanimous agreement of the two banks. The board of the Overseas
Bank will consist of an equal number of representatives of these two banks.
The Ballarat Bank and the St Martins bank have agreed to provide initial funding to establish
the Overseas Bank and have also agreed on a mechanism for further cash inflows if required.
Required
Discuss whether a joint arrangement exists and how it should be classified.
The joint arrangement is carried out through a separate vehicle – the Overseas Bank - whose legal
form confers separation between the parties and the separate vehicle.
The terms of the contractual arrangement do not specify that the parties have rights to the assets, or
obligations for the liabilities, of the Overseas Bank, but it establishes that the parties have rights to the
net assets of the Overseas Bank.
The commitment by the parties to provide support if the Overseas Bank is not able to comply with the
applicable legislation and banking regulations is not by itself a determinant that the parties have an
obligation for the liabilities of the Overseas Bank.
There are no other facts and circumstances that indicate that the parties have rights to substantially all
the economic benefits of the assets of the Overseas Bank and that the parties have an obligation for
the liabilities of the Overseas Bank.
The joint arrangement is a joint venture.

Both the Ballarat Bank and the St Martins Bank recognise their rights to the net assets of the Overseas
Bank as investments and account for them using the equity method.
Case study 7 Accounting for an asset used by a number of companies

Raby Ltd and Bay Ltd are companies that have newly discovered oil wells in a Middle-Eastern
country. There is some distance to the nearest port and, rather than build separate pipelines,
they have agreed to jointly build a pipeline to the port and share the use of the pipeline for
transporting oil. The management of the pipeline is conducted in accordance with an agreement
between Raby Ltd and Bay Ltd which requires unanimous agreement in relation to such issues
as maintenance and future expansion or contraction of the pipeline. Kalgoorlie Ltd also has oil
wells in the area and has agreed to use any excess capacity of the pipeline.
Required
Discuss how you would account for the pipeline.
In this circumstance there is a jointly controlled asset, namely the pipeline. As there is no separate
vehicle established the joint arrangement is classified as a joint operation.
Both Raby Ltd and Bay Ltd will recognise a share of the jointly controlled asset in their records.
These two companies will also recognise any expenses associated with the operation of the pipeline
such as maintenance costs. If the pipeline is expanded then any costs associated with this would be
capitalised equally into the pipeline asset in the records of each of the companies.
Any revenues received from Kalgoorlie Ltd would be recognised equally in the records of the two
joint operators.

PRACTICE QUESTIONS
Question 24.1 Contributions of cash
On 1 July 2016, Denmark Ltd and Walpole Ltd agreed to a joint operation that would be
involved in the production of fertilizer products. The contractual arrangement required both
parties to invest $300 000 in the joint operation with each party having a 50% interest in the
joint operation. Under the contractual arrangement the joint operation would distribute the
output equally to each venturer.
At 30 July 2017 the joint operation reported the following information:
Statement of Financial Position (partial)

Cash $70 000 Accounts payable $50 000
Raw materials 40 000 Accrued wages 20 000
Inventory (undistributed) 20 000
Work in progress 40 000
Machinery 250 000
Accumulated depreciation (50 000)
$370 000 $70 000
Cash Receipts and Payments

Payments Receipts
Contributions $600 000
Purchase of raw materials $ 80 000
Wages 120 000
Purchase of equipment (2 July 2016) 250 000
Other expenses 80 000
$530 000 $600 000
Costs Incurred
Wages $140 000
Raw materials 90 000
Overheads including depreciation 130 000
360 000
Cost of inventory (320 000)
Work in progress at 31 July 2017 $40 000
Required
Prepare the journal entries in the records of Denmark Ltd in relation to the joint operation for
the year ending 30 June 2017.
1 July 2016
Cash in JO Dr 300 000

Cash Cr 300 000
(Investment in JO with Walpole Ltd)
30 June 2017
Inventory Dr 150 000 (300 000/2)

Raw materials in JO Dr 20 000 (40 000/2)
Inventory in JO Dr 10 000 (20 000/2)
Work in progress in JO Dr 20 000 (40 000/2)
Machinery in JO Dr 125 000 (250 000/2)

Accumulated depreciation –
machinery – JO Cr 25 000 (50 000/2)
Accounts payable in JO Cr 25 000 (50 000/2)
Accrued wages in JO Cr 10 000 (20 000/2)
Cash in JO Cr 265 000 (300 000 -
– ½ x 70 000))

Question 24.2 Contribution of plant
On 1 July 2016, Tully Ltd and Cooktown Ltd signed a contractual agreement to form a joint
operation for the manufacture of kitchen products. The agreement provided that Cooktown Ltd
would contribute $240 000 in cash while Tully Ltd would provide $40 000 in cash and
manufacturing equipment currently held by Tully Ltd that had a fair value of $200 000. The
equipment was currently recorded by Tully Ltd at a carrying amount of $180 000, net of
accumulated depreciation of $30 000.
The agreement provided that each operator would receive half of the output of the joint
operation. Depreciation on equipment is charged at 20% p.a. on cost, based on the expected
pattern of use in the joint operation.
Financial information provided by the joint operation at 30 June 2017 was as follows.

Cash $56 000 Accounts payable $40 000
Inventory (undistributed) 16 000 Loan 200 000
Equipment 400 000
Accumulated depreciation (80 000) ___ __
$456 000 $256 000

Payments Receipts
Loan 200 000
Wages 96 000
$424 000 $480 000
Costs Incurred
Wages $112 000
Overheads including depreciation on equipment 144 000
328 000
Required
Prepare the journal entries in the records of Tully Ltd in relation to the joint operation for the
year ending 30 June 2017.
1 July 2016
Cash in JO Dr 140 000 (1/2[240 000 + 40 000])

Plant in JO Cr 90 000 (1/2 x 180 000)
Cash Cr 40 000
Gain on sale of equipment Cr 10 000 (1/2 x 20 000)
Plant Cr 210 000
Accumulated depreciation – plant Dr 30 000
(Investment in JO with Cooktown Ltd)

30 June 2017
Inventory Dr 140 000 (280 000/2)

Equipment in JO Dr 100 000 (200 000/2)
equipment – JO Cr 40 000 (80 000/2)
Loan Cr 100 000 (200 000/2)
Cash in JO Cr 112 000 (140 000 -
– ½ x 56 000))
Working
Depreciation charged on contributed asset $40 000 20% x $200 000
Depreciation on cost to Tully Ltd $36 000 20% x $180 000
Adjustment $4 000
Share of $4000
Work in progress in JO $16 000 $390
Inventory in JO 8 000 195
Inventory 140 000 3 415
164 000 4 000
equipment – JO Dr 4 000
Work in progress in JO Cr 390
Inventory in JO Cr 195
Inventory Cr 3 415

Question 24.3 Management fees supplied by one of the joint operators

On 1 July 2016, Broome Ltd and Kalbarri Ltd agreed to a joint operation that would be
involved in the production of furniture. The contractual arrangement required both parties to
invest $270 000 cash in the joint operation with each party having a 50% interest in the joint
operation. Under the contractual arrangement the joint operation would distribute the output
equally to each venturer.
The joint operation agreed to pay Broome Ltd $30 000 p.a. to supply management services to
the joint operation. The cost to Broome Ltd to supply these services is $24 000.
At 30 July 2017 the joint operation reported the following information:

Cash $33 000 Accounts $45 000
payable
Inventory (undistributed) 20 000
Machinery 225 000
Accumulated depreciation (45 000) ___ __
$323 000 $63 000

Payments Receipts
Wages 108 000
Management services (supplied by Broome Ltd) 30 000
$507 000 $540 000
Costs Incurred
Wages $126 000
Management services 30 000
Overheads including depreciation 117 000
354 000
Required
Prepare the journal entries in the records of Broome Ltd in relation to the joint operation for
the year ending 30 June 2017.
1 July 2016
Cash in JO Dr 270 000

Cash Cr 270 000
(Investment in JO with Kalbarri Ltd)
30 June 2017
Inventory Dr 140 000 (280 000/2)



Machinery in JO Dr 112 500 (225 000/2)
equipment – JO Cr 22 500 (45 000/2)
Cash in JO Cr 253 500 (270 000 -
– ½ x 33 000))
Management services expense Dr 24 000

Cash Cr 24 000
(Cost of supplying services to JO)
Cash Dr 30 000
Management services revenue Cr 30 000
(Receipt from JO for supply of services)
Management services revenue Dr 12 000

Management services expense Cr 12 000
(Elimination of expense of supply of
services to self: ½ x $24 000)
The profit element on supplying services to the JO is $6000 ie $30 000 less $24 000. The profit to
itself ie $3000 is proportionately adjusted across inventory-related assets:
Share of $3000
Work in progress in JO $27 000 $458
Inventory 140 000 2 373
177 000 3 000
Management services revenue Dr 3 000

Inventory Cr 2 373

Question 24.4 Sharing of output
On 1 July 2016, Darwin Ltd entered into a joint agreement with Broome Ltd to form an
unincorporated entity to produce a new type of widget. It was agreed that each party to the
agreement would share the output equally. Darwin Ltd’s initial contribution consisted of $2 000
000 cash and Broome Ltd contributed machinery that was recorded in the records of Broome
Ltd at $1 900 000. During the first year of operation both parties contributed a further $3 000
000 each.
On 30 June 2017, the venture manager provided the following statements:
Costs Incurred
For the year ended 30 June 2017
Wages $1 840 000
Supplies 2 800 000
Overheads 2 200 000
6 840 000
Cost of inventory (4 840 000)
Work in progress at 30 June 2017 $ 2 000 000
Receipts and Payments

for year ended 30 June 2017
Receipts:
Original contributions $ 2 000 000
Additional contributions 6 000 000
8 000 000
Payments:
Machinery (2/7/16) $ 800 000
Wages 1 800 000
Supplies 3 000 000
Overheads 2 100 000
Operating expenses 200 000 7 900 000
Closing cash balance $ 100 000
Assets and Liabilities

at 30 June 2017
Assets
Cash $ 100 000
Machinery 2 800 000
Supplies 400 000
Work in progress 2 000 000
Total assets $ 5 300 000
Liabilities
Accrued wages 40 000
Creditors 300 000
Total liabilities $ 340 000
Net assets $ 4 960 000
Each joint operator depreciates machinery at 20% p.a. on cost in its own records.
Required
A. Prepare the journal entries in the records of Darwin Ltd and Broome Ltd in relation to the
joint operation.
B. Prepare the journal entries in the records of Broome Ltd assuming that the joint operation,

not the operators, had depreciated the machinery and included that expense in the cost of
inventory transferred.
PART A
JOURNAL ENTRIES IN RECORDS OF DARWIN LTD

$’000 $’000
1 July 2016
Cash in J0 Dr 1 000 (2 000/2)

Machinery in J0 Dr 1 000 (2 000/2)
Cash Cr 2 000
Cash in J0 Dr 3 000
Cash Cr 3 000
30 June 2017
Machinery in J0 Dr 400 (2800/2 – 1 000)

Supplies in J0 Dr 200 (400/2)
Work in progress in J0 Dr 1 000 (2 000/2)
Inventory Dr 2 420 (4 840/2)
Operating expenses Dr 100 (200/2)
Accrued wages in J0 Cr 20 (40/2)
Creditors in J0 Cr 150 (300/2)
Cash in J0 Cr 3 950 (100/2 – 4 000)
Inventory – depreciation expense Dr 280 (20% x 1 400)

Accum. depreciation in JO Cr 280
JOURNAL ENTRIES IN THE RECORDS OF BROOME LTD
$’000 $’000
1 July 2016
Cash in JO Dr 1 000 (2 000/2)

Machinery in JO Dr 950 (1 900/2)
Gain on machinery sold Cr 50 (100/2)
Machinery Cr 1 900
Cash in JO Dr 3 000
Cash Cr 3 000
30 June 2017
Machinery in JO Dr 400 (2800/2 – 1 000)

Supplies in JO Dr 200 (400/2)
Inventory Dr 2 420 (4 840/2)
Operating expenses Dr 100 (200/2)

Accrued wages in JO Cr 20 (40/2)

Creditors in JO Cr 150 (300/2)
Cash in JO Cr 3 950 (100/2 – 4 000)
Inventory – depreciation expense Dr 270 (20%(400 + 950)

Accum. depreciation in JO Cr 270
PART 2
JOURNAL ENTRIES IN THE RECORDS OF BROOME LTD

$’000 $’000
1 July 2016
Cash in JO Dr 1 000 (2 000/2)

Machinery in JO Dr 950 (1 900/2)
Gain on machinery sold Cr 50 (100/2)
Machinery Cr 1 900
Cash in JV Dr 3 000
Cash Cr 3 000
30 June 2017
Machinery in JO Dr 400 (2800/2 – 1 000)

Supplies in JO Dr 200 (400/2)
Inventory Dr 2 700 (4 840/2) +
280 depn)
Other expenses Dr 100 (200/2)
Accum depreciation in JO Cr 280 (1/2 x 20% x 2800)
Accrued wages in JO Cr 20 (40/2)
Cash in JO Cr 3 950 (100/2 – 4 000)
Accum depreciation in JO Dr 10
Inventory Cr 7
(Adjustment for depreciation being
based on carrying amount rather than fair value)
Working
Inventory 2 700 73% 7
Work in Progress in JO 1 000 27% 3
3 700 10

Question 24.5 Unincorporated joint operation

On 1 July 2015, Esperance Ltd entered into a joint agreement with Walpole Ltd to establish an
unincorporated joint operation to manufacture timber-felling equipment. It was agreed that the
output of the operation would be shared: Esperance Ltd 60% and Walpole Ltd 40%.
To commence the operations, contributions were as follows:
 Esperance Ltd: cash of $1 100 000 and equipment having a carrying amount of $300 000
and a fair value of $400 000
 Walpole Ltd: cash of $600 000 and plant having a carrying amount of $450 000 and a fair
value of $400 000.
Walpole Ltd revalued the plant it contributed to the joint operation to fair value prior to its
transfer to the joint operation. Plant and equipment was depreciated (to the nearest month) in
the joint operation’s books at 20% p.a. on cost. During December 2015, an additional $1 000
000 cash was contributed by the operators in the same proportion as their initial contributions.
The following information, in relation to the joint operations for the year ended 30 June 2016,
was provided by the operation manager:
(a) Costs incurred for the year ended 30 June 2016
Wages $ 400 000

Raw materials 1 200 000
Overheads 650 000
Depreciation 205 000
2 455 000
Less: Cost of inventory 2 005 000
Work in progress at 30 June 2016 $ 450 000
(b) Receipts and payments for year ended 30 June 2016
Payments Receipts
Contributions $2 700 000
Plant (3 January 2016) $ 450 000
Wages 350 000
Accounts payable 980 000
Overhead costs 610 000
Operating expenses 40 000
$2 430 000 $2 700 000
(c) Assets and liabilities at 30 June 2016.
Dr Cr
Cash $ 270 000
Inventory 255 000
Plant and equipment 1 250 000
Accumulated depreciation — plant and equipment $205 000
Accrued expenses — wages and overheads 90 000
Required
Prepare the journal entries in the records of Esperance Ltd in relation to the joint operation for
the year ended 30 June 2016. (Round all amounts to the nearest dollar and show all relevant
workings.)

Journal Entries - Accounts of Esperence Ltd (60% Interest)

$'000 $'000
1 July 2015
Cash in JO Dr 1 020 (1700 x .6)

Plant & equip in JO Dr 420 ((400 + 300) x .6)
Gain on equipment sold Cr 40 (100 x .4)
Equipment Cr 300
Cash Cr 1 100
December 2015
Cash in JO Dr 600
Cash Cr 600
30 June 2016
Raw material in JO Dr 60 (100 x .6)

Work in progress in JO Dr 270 (450 x .6)
Inventory in JO Dr 153 (255 x .6)
Inventory Dr 1 050 (1 750 x .6)
Plant & equipment in JO Dr 270 (450 x .6)
Other expenses in JO Dr 24 (40 x .6)
Accum depreciation -
Plant & equip in JO Cr 123 (205 x .6)
Accounts payable in JO Cr 192 (320 x .6)
Accrued expenses in JO Cr 54 (90 x .6)
Cash in JO Cr 1 458 (1620 - (270 x .6))
Accumulated depreciation -
Plant & equip in JO Dr 12
Inventory Cr 9
Depreciation based on 60% ($400 000 - $300 000) requires a $12 000 adjustment to depreciation expense
which must be allocated across all forms of inventory which include the depreciation expense:
Total Value % Allocation

Inventory 1 050 71 9
1 473

Question 24.6 Operators share output
Brisbane Ltd enters into an arrangement with another operator, Ipswich Ltd, to establish an
unincorporated joint operation to produce a drug that assists both hay fever sufferers and those
with sinus problems. To produce the drug requires a combination of the technical and
pharmaceutical knowledge of both companies. Each company will receive an equal share of the
output of the drug, which they will retail through their own preferred outlets, potentially under
different names. Brisbane Ltd agrees to manage the project for a fee of $100 000 p.a. Brisbane
Ltd estimates that it will cost $80 000 to provide the service. The management fee is capitalised
into the cost of inventory produced.
The operation commences on 1 January 2017, with each operator providing $1 million cash.
At the end of the first year, the statement of financial position of the joint operation showed:
Assets
Vehicles $ 200 000
Equipment 820 000
Inventory 80 000
Materials 210 000
Total assets $ 1 520 000
Liabilities
Provisions 80 000
Payables 40 000
Total liabilities $ 120 000
Net assets $ 1 400 000
Operators’ equity
Initial contributions 2 000 000
Inventory delivered (400 000)
General administration costs (200 000)
Total equity $ 1 400 000
Required
A. Prepare the journal entries in the records of Brisbane Ltd during 2017.
B. What differences would occur if the management fee paid to Brisbane Ltd were treated as
general administration costs?
At 1 January 2017:
Cash in JO Dr 1 000 000

Cash Cr 1 000 000
During the period in relation to the supply of management services:
Cash Dr 100 000

Revenue Cr 100 000
Expenses Dr 80 000
Cash Cr 80 000
At 31 December 2017:
Vehicles in JO Dr 100 000
Accumulated depreciation in JO Cr 25 000

Equipment in JO Dr 410 000

Accumulated depreciation in JO Cr 30 000
Inventory in JO Dr 40 000
Work-in-progress in JO Dr 160 000
Materials in JO Dr 105 000
Provisions in JO Cr 40 000
Payables in JO Cr 20 000
Inventory Dr 200 000
Expenses Dr 100 000
Cash in JO Cr 1 000 000
(Share of assets and liabilities of JO)
Revenue Dr 40 000
Expenses Cr 40 000
(1/2 x cost of providing services)
Revenue Dr 10 000
Inventory Cr 5 000
Inventory in JO Cr 1 000
Work-in-progress in JO Cr 4 000
(Elimination of profit element)
Workings:
Inventory 200 000 ½ 5 000
Inventory in JO 40 000 1/10 1 000
Work-in-progress in JO 160 000 2/5 4 000
400 000 10 000
2. If the management fee is regarded as general administration expense by the JO instead of being
capitalised into inventory, then instead of the two revenue adjustments shown under Part 1 above,
the journal entry in the venturer is:
Revenue Dr 50 000
Expense Cr 50 000
This eliminates the revenue in relation to itself as well as the expense brought across from the JO.

Question 24.7 Share of output

During 2016, a group of academics were undertaking a bonding exercise in the Snowy
Mountains. While tracking through the hills, they came across a spring of pure sweet water.
They formed a company called Albany Ltd and decided to establish the extent of their find. In
the process they expended funds, obtained from teaching overseas students, on equipment and
employing geologists and mining experts. The general conclusion was that the find was
significant and a commercially profitable business selling mineral water was feasible. As they
were academics, and had no practical experience in the real world of big business, they decided
to establish a joint operation with Denmark Ltd who would establish a factory to produce
bottled water. The joint operation agreement was signed on 1 January 2017, with Albany Ltd
and Denmark Ltd having a 50% share in the unincorporated joint operation.
The initial contributions by the two operators were as follows:
Albany Ltd:
Capitalised expenses $ 800 000
Equipment 800 000
Cash 2 400 000
Denmark Ltd:
Cash $4 000 000
The capitalised expenses were recorded in the books of Albany Ltd at $320 000, while the
equipment was recorded at a carrying amount of $640 000. In order to supply the cash, Albany
Ltd borrowed $800 000 of its required contribution. It is expected that the reserves of water will
be depleted within 10 years, and the equipment is expected to have a similar useful life.
On 1 June 2017, the joint operation was ready to start producing bottles of water. The joint
operation’s accounts at 30 June 2018 contained the following information:
Statement of Financial Position (extract)

2017 2018
Work in progress $ 200 000
Capitalised costs $ 800 000 800 000
Plant and equipment 8 160 000 7 760 000
Cash 80 000 240 000
Accounts payable – plant (240 000) (800 000)
Accrued expenses – wages etc. (160 000) (200 000)
Cash Receipts and Payments (extract)

2018
Payments Receipts
Materials and supplies $ 480 000
Administration 160 000
Wages 560 000
Accounts payable – plant 960 000
Contributions from joint operators $ 2 000 000
The output of the first year’s operations was distributed equally to the joint operators.
Production in the first year was estimated to be 15% of the reserves. At 30 June 2018, Albany
Ltd held 10% of its share of output in inventory, having sold the rest to its customers for $2 000
000. Expenses of the joint operation incurred up to 30 June 2018 were allocated to the
operators.
Because of some damage to the environment caused by the establishment of the pumping station
to extract the water, there is a potential restoration cost to be incurred at closure of the joint
operation. Whether this will be required will depend on the result of current legal inquiries.

Required
Prepare the journal entries in the records of Albany Ltd for the periods ending 30 June 2017
and 2018.
Journal entries in the accounts of Albany Ltd
Six months ended 30 June 2017
1 January 2017
$'000 $'000
Capitalised Expenses in J0 Dr 160 (320/2)

Equipment in JO Dr 320 (640/2)
Cash in JO Dr 3 200 ((2 400 + 4 000)/2)
Gain on equipment sold Cr 80 (160/2)
Gain on capitalised expenses
sold Cr 240 (480/2)
Cash Cr 2 400
Equipment Cr 640
Capitalised expenses Cr 320
Cash Dr 800
Bank loan Cr 800
30 June 2017
Work-in-progress Dr 100 (200/2)

Plant & equipment in JO Dr 3 480 ((7760 - 800/2)
Cash in JO Cr 3 080 ((240 - 6 400)/2)
Accounts payable in JO Cr 400 (800/2)
Accrued expenses in JO Cr 100 (200/2)
Year ended 30 June 2018
Cash in JO Dr 1 000 (2 000/2)

Cash Cr 1 000
Inventory Dr 600
Plant & equipment in JO Dr 200 ((8 160 - 7 760/2)
Accounts payable in JO Dr 280 ((800 - 240)/2)
Accrued expenses in JO Dr 20 ((200- 160)/2)
Administration expenses Dr 80 (160/2)
Cash in JO Cr 1 080 (80/2 – 1 120)
Work-in-progress in JO Cr 100
Inventory Dr 624
Accum amortisation -
Capitalised expenses in JO Cr 24
Accum depreciation -
Plant & equipment in JO Cr 600
Calculations

Cost of Inventory
Work-in-progress 200
Materials and supplies 480
Wages (560 - 200 + 160) 520
1 200 x 50% = 600
Amortisation of capitalised expenses: Albany Ltd
15% x $160 = $ 24
Depreciation of plant & equipment: Albany Ltd
Balance at 1 January 1917 $320 x 15% = $48

Acquisitions to 30 June 1917 $3 480 x 15% = $522
Acquisitions to 30 June 1918 $200 x 15% = $30
Total depreciation = $ 600
Cost of sales Dr 1 101

Inventory Cr 1 101
(90% (600 + 624))
Cash/receivables Dr 2 000
Sales revenue Cr 2 000
Note: the balance of inventory in Albany Ltd is 10% (600 + 624) = 122.4 609) = 120.9


On 1 July 2017, Toowoomba Ltd entered into a joint operation agreement with Miles Ltd to
manufacture stevedoring equipment. It was agreed that each party to the agreement would
share the output equally.
To commence the operation, contributions were as follows:
 Toowoomba Ltd: cash of $2 000 000 and equipment having a $400 000 carrying amount and a
fair value of $600 000
 Miles Ltd: cash of $1 800 000 and plant having a carrying amount of $900 000 and a fair
value of $800 000.
Miles Ltd revalued the plant it contributed to the joint operation prior to its transfer to the
joint operation.
Plant and equipment is depreciated (to the nearest month) in the joint operation’s books at
20% p.a. on cost.
During December 2017, both parties contributed an additional $1 500 000 cash.
The following information, in relation to the joint operation’s operations for the year ended
30 June 2018, was provided by the operation manager.
(a) Costs incurred for the year ended 30 June 2018
Wages $ 1 200 000

Raw materials 2 150 000
Overheads 1 860 000
Depreciation 470 000
5 680 000
Less: Cost of inventory 2 580 000
Work in progress at 30 June 2018 $ 3 100 000
(b) Receipts and payments for the year ended 30 June 2018
Payments Receipts
Contributions $ 6 800 000
Plant (10 July 2017) $ 950 000
Wages 1 150 000
Accounts payable 1 980 000
Overhead costs 1 810 000
Operating expenses 440 000 ________
$ 6 330 000 $ 6 800 000
(c) Assets and liabilities as at 30 June 2018
Dr Cr
Cash $ 470 000
Inventory 580 000
Accumulated depreciation – plant and
equipment $ 470 000
Accrued expenses 100 000

Required
Prepare the journal entries in the records of Toowoomba Ltd and Miles Ltd in relation to the
joint operation for the year ended 30 June 2018.
Journal entries in records of Toowoomba Ltd
$'000 $'000
1 July 2017
Cash in JO Dr 1 900 (3 800/2)
Plant & equipment in JO Dr 600 (800/2 + 400/2)
Gain on plant & equipment
sold Cr 100 (200/2)
Plant & equipment Cr 400
Cash Cr 2 000
December 2017
Cash in JO Dr 1 500
Cash Cr 1 500
30 June 2018
Raw material in JO Dr 180 (360/2)

Work-in-progress in JO Dr 1 550 (3 100/2)
Inventory in JO Dr 290 (580/2)
Inventory Dr 1 000 (2 000/2)
Plant & equipment in JO Dr 475 (950/2)
Other expenses in JO Dr 220 (440/2)
Accum. depreciation in JO Cr 235 (470/2)
Cash in JO Cr 3 165 (3 400 – 470/2)
Accum. depreciation in JO Dr 20
Work-in-progress in JO Cr 11
Inventory Cr 7
Depreciation based on 50% ($600 000 - $400 000) requires a $20 000 adjustment to depreciation
expense which must be allocated across all forms of inventory which include the depreciation cost.
Calculation
Total Value % Allocation
Work-in-progress 1 550 54.6 10 920
Inventory in JO 290 10.2 2 040
Inventory 1 000 35.2 7 040
2 840 20 000
Journal entries in the accounts of Miles Ltd
$'000 $'000
1 July 2017
Loss on revaluation of plant Dr 100
Plant Cr 100

Cash in JO Dr 1 900 (3 800/2)

Plant & equipment in JO Dr 700 (800/2 + 600/2)
Cash Cr 1 800
December 2017
Cash in JO Dr 1 500
Cash Cr 1 500
30 June 2018
Raw material in JO Dr 180 (360/2)

Work-in-progress in JO Dr 1 550 (3 100/2)
Inventory in JO Dr 290 (580/2)
Inventory Dr 1 000 (2 000/2)
Other expenses in JO Dr 220 (440/2)
Accum depreciation in JO Cr 235 (470/2)
Cash in JO Cr 3 165 (3 400 – 470/2)

Question 24.9 Unincorporated joint operation managed by one of the

operators
During 2015, discussions took place between Broken Bay Ltd, a company concerned with the
design of specialised tools and machines, and two companies, Armidale Ltd and Newcastle Ltd,
which could potentially assist in the manufacture of a new tool. The new tool is called
SmartTool and is to be used in the making of high grade mining instruments. On 1 July 2016,
the three companies agreed to form an unincorporated joint operation to achieve this purpose.
It was agreed that the relative interests in the joint operation would be:
Broken Bay Ltd 50%

Armidale Ltd 25%
Newcastle Ltd 25%
It was further agreed that Newcastle Ltd would undertake a management role in relation to
the new operation, being responsible for operating decisions and for record keeping. Newcastle
Ltd would be paid a management fee by the joint operation of $20 000.
In establishing the joint operation, the various parties agreed to provide the following assets
as their initial contribution:
 Broken Bay Ltd was to provide the patent to SmartTool, which was being recorded by
Broken Bay Ltd at a capitalised development cost of $1 400 000. The operators agreed that
this asset had a fair value of $2 000 000, with an expected useful life of 10 years.
 Armidale Ltd was to provide cash of $1 000 000.
 Newcastle Ltd was to provide the basic plant and equipment to manufacture the new tool. The
plant and equipment was recorded in the books of Newcastle Ltd at $600 000, but the
operators agreed that it had a fair value of $1 000 000. The plant and equipment was
estimated to have a further useful life of 5 years.
The output of the joint operation was distributed to each of the operators in proportion to
their agreed interests during the 2016–17 period. By 30 June 2017, Newcastle Ltd had sold 80%
of the output received from the joint operation for $300 000. The joint operation had not paid
the management fee to Newcastle Ltd by 30 June 2017.
Information from the financial statements of the joint operation as at 30 June 2017 is as
follows:
Assets
Cash $ 40 000
Patent 2 000 000
Office equipment 88 000
Liabilities
Creditors – for materials $ 136 000
Accruals – salaries etc, including the management fee 112 000
Cash payments
Salaries $ 220 000
Materials 488 000
Operating expenses 84 000
Required
A. Prepare the journal entries in the records of Broken Bay Ltd and Armidale Ltd at the
commencement of the joint operation.

B. Prepare the journal entries in the records of Newcastle Ltd for the financial year ending 30
June 2017.
A. Journal entries – entries in the accounts of Broken Bay Ltd and Armidale Ltd at 1 July 2016
BROKEN BAY LTD (50%):

$'000 $'000
Patent in JO Dr 700 (1400/2)
Cash in JO Dr 500 (1 000/2)
Plant & equipment in JO Dr 500 (1 000/2)
Gain on patent sold Cr 300 (600/2)
Capitalised R&D costs Cr 1 400
ARMIDALE LTD (25%):

$'000 $'000
Patent in JO Dr 500 (2 000/4)

Cash in JO Dr 250 (1 000/4)
Plant & equipment in JO Dr 250 (1 000/4)
Cash Cr 1 000
B. Journal entries in the accounts of Newcastle Ltd

$'000 $'000
1 July 2016
Patent in JO Dr 500 (2 000/4)

Cash in JO Dr 250 (1 000/4)
Gain on plant & equipment
sold Cr 300 (3/4 x 400)
30 June 2017
Working: Cost of output

Cash expenses 792
Accruals 112
Creditors 136
1 040
Depreciation 416.8
1 456.8
Work in progress 40.0
Cost of inventory 1 416.8
Plant & equipment in JO Dr 20 ((1 080 - 1 000)/4)

Accum depn - P&E in JO Cr 52 (208/4)
Accum depn - patent in JO Cr 50 (200/4)
Office equipment in JO Dr 22 (88/4)
Accum depn - OE in JO Cr 2.2 (8.8/4)
Work in progress in JO Dr 10 (40/4)

Inventory Dr 354.2 (1 416.8/4)

Cash in JO Cr 240 ((40 - 1 000)/4)
Accruals in JO Cr 28 (112/4)
Accum depn - P&E in JO Dr 20

Inventory Cr 19.5
Work in progress in JO Cr 0.5
(Adjustment in depreciation is $20 = 1/5 x 1/4 x ($1 000 - $600)
Allocation to inventory is $19.5 = 354.2/364.2 x $20)
Cash/Accounts receivable Dr 300

Sales Revenue Cr 300
Cost of sales Dr 263.80

Inventory Cr 263.80
(80% (354.2 –19.5 – 5.0))
Management fee receivable Dr 20

Fee Revenue Cr 20
Cost of supplying service Dr 20

Cash Cr 20
Fee revenue Dr 5
Cost of supplying service Cr 5
(1/4 x 20)
Accruals in JO Dr 5
Management fee receivable Cr 5


After prospecting unsuccessfully for a number of years for gold, in November 2017 Greens Pool
Ltd finally found an economically viable deposit. Realising that it did not have sufficient
expertise to operate a gold mine successfully, Greens Pool Ltd formed an unincorporated joint
operation with Apollo Bay Ltd, agreeing to share the output of the mine equally. It was agreed
that the two operators would initially contribute the following assets:
Greens Pool Ltd:

Capitalised exploration costs, including permits licences, and mining $ 800 000
rights, currently recorded by Greens Pool Ltd at $200 000
Cash 700 000
Apollo Bay Ltd:
Cash 1 500 000
The joint operation commenced on 1 January 2018. By 31 December 2018, the mine had been
operating successfully. It was reliably estimated at the commencement of the project that the
mine had expected reserves of 100 000 tonnes.
In the first year following commencement, 5000 tonnes of gold was extracted, while in 2019,
10 000 tonnes was extracted. This output was distributed to the operators equally.
All costs except general administration costs were capitalised into the cost of the output, with
depreciation of equipment and capitalised exploration costs being written off in proportion to
the depletion of the reserves. General administration expenses were allocated to the operators
equally.
The financial statements of the joint operation over the first 2 years of operation showed the
following information:

2018 2019
Balance at 1 January — $ 300 000
Contributions from operators $ 2 200 000 1 200 000
2 200 000 1 500 000
Plant and equipment 800 000 190 000
Wages 600 000 660 000
Materials 200 000 240 000
General administration 300 000 300 000
1 900 000 1 390 000
Balance at 31 December $ 300 000 $ 110 000
Statement of Financial Position

2018 2019
Capitalised exploration costs $ 760 000 $ 680 000
Plant and equipment 800 000 990 000
Accumulated depreciation (40 000) (140 000)
Cash 300 000 110 000
Materials 50 000 40 000
1 870 000 1 680 000
Accrued wages 10 000 20 000
Accounts payable (materials) 20 000 30 000
30 000 50 000
Net assets $ 1 840 000 $ 1 630 000
Operators’ equity:
Contributions as at 1 January 3 000 000 1 840 000

Additional contributions 1 200 000

3 000 000 3 040 000
Less: Output distributed 860 000 1 110 000
Allocation: general administration 300 000 300 000
1 160 000 1 410 000
Balance at 31 December $ 1 840 000 $ 1 630 000
Required
Prepare the journal entries in the records of Greens Pool Ltd to record its interest in the joint
operation for the years ending 31 December 2018 and 2019.
2018
Cash in JO Dr 1 100 000 [1/2(700 000 + 1 500 000)]

Capitalised expenses in JO Dr 100 000 [1/2 x 200 000]
Capitalised expenses Cr 200 000
Gain on capitalised
expenses sold Cr 300 000 [1/2 x 600 000]
Cash Cr 700 000
Capitalised expenses in JO Cr 20 000 [1/2(800 000 – 760 000)]

Plant & equipment in JO Dr 400 000 {1/2(800 000 – 0)]
Accum depreciation in JO Cr 20 000 [1/2(40 000 – 0)]
Cash in JO Cr 950 000 [1/2(300 000 – 1 100 000)]
Materials in JO Dr 25 000 [1/2(50 000 – 0)]
Accrued wages in JO Cr 5 000 [1/2(10 000 – 0)]
Accounts payable in JO Cr 10 000 [1/2(20 000 – 0)]
Inventory Dr 430 000 [1/2 x 860 000]
General Admin expenses Dr 150 000 [1/2 x 300 000]
As the capitalized expenses are at $100 000 for Greens Pool Ltd, and not $400 000, then the
amortisation expense is $5 000, not $20 000. Hence a reduction in the cost of the output is required:
Capitalised expenses in JO Dr 15 000

Inventory Cr 15 000
2019
Cash in JO Dr 600 000 [1/2 x 1 200 000]

Cash Cr 600 000
Capitalised expenses in JO Cr 40 000 [1/2(680 000 – 760 000)]

Plant & equipment in JO Dr 95 000 [1/2(990 000 – 800 000)]
Accum depreciation in JO Cr 50 000 [1/2(140 000 – 40 000)]
Cash in JO Cr 695 000 [1/2(110 000 – 300 000
- 1 200 000)]
Materials in JO Cr 5 000 [1/2(40 000 – 50 000)]
Accrued wages in JO Cr 5 000 [1/2(20 000 – 10 000)]
Accounts payable in JO Cr 5 000 [1/2(30 000 – 20 000)]
Inventory Dr 555 000 [1/2 x 1 110 000]
General admin expenses Dr 150 000 [1/2 x 300 000]
Capitalised expenses are at $100 000, not $400 000. Therefore, the adjustment should be $10,000 not
$40 000.

Capitalised expenses in JO Dr 30 000

Inventory Cr 30 000

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© John Wiley & Sons Australia, Ltd 2015

Chapter 24 – Joint arrangements

1. What is a joint arrangement?

6. A joint arrangement is either a joint operation or a joint venture.

2. How does a joint arrangement differ from an associate?

3. What is meant by joint control?

See AASB 11 para 7 and Appendix A.

Under AASB 10:

Relationship Level of control

© John Wiley and Sons Australia Ltd 2015 24.2

5. How does a joint venture differ from a joint operation?

7. How are joint ventures accounted for?

8. How are joint operations accounted for?

© John Wiley and Sons Australia Ltd 2015 24.3

Case study 1 Classification of joint arrangements

(p) Interests in Jointly Controlled Assets

In this example, Paladin is likely to have interests in joint operations.

Case study 2 Classification of joint arrangements

© John Wiley and Sons Australia Ltd 2015 24.4

Case study 3 Classification of a joint arrangement

Does a joint arrangement exist?

© John Wiley and Sons Australia Ltd 2015 24.5

Hence a joint arrangement exists.

How should the joint arrangement be classified?

These forms of arrangement are generally classified as joint operations.

Case study 4 Joint operators as managers

© John Wiley and Sons Australia Ltd 2015 24.6

Case study 5 Existence and classification of a joint arrangement

Does a joint arrangement exist?

How is the joint arrangement classified?

© John Wiley and Sons Australia Ltd 2015 24.7

Case study 6 Classification of a joint arrangement

The joint arrangement is a joint venture.

© John Wiley and Sons Australia Ltd 2015 24.8

Case study 7 Accounting for an asset used by a number of companies

© John Wiley and Sons Australia Ltd 2015 24.9

Question 24.1 Contributions of cash

Statement of Financial Position (partial)

Cash Receipts and Payments

Cash in JO Dr 300 000

Inventory Dr 150 000 (300 000/2)

© John Wiley and Sons Australia Ltd 2015 24.10

© John Wiley and Sons Australia Ltd 2015 24.11

Question 24.2 Contribution of plant

Statement of Financial Position (partial)

Cash Receipts and Payments

Cash in JO Dr 140 000 (1/2[240 000 + 40 000])

© John Wiley and Sons Australia Ltd 2015 24.12

Inventory Dr 140 000 (280 000/2)

© John Wiley and Sons Australia Ltd 2015 24.13

Question 24.3 Management fees supplied by one of the joint operators

Statement of Financial Position (partial)

Cash Receipts and Payments

Cash in JO Dr 270 000

Inventory Dr 140 000 (280 000/2)

© John Wiley and Sons Australia Ltd 2015 24.14

Inventory in JO Dr 10 000 (20 000/2)

Management services expense Dr 24 000

Management services revenue Dr 12 000

Management services revenue Dr 3 000

© John Wiley and Sons Australia Ltd 2015 24.15