FINANCIAL REPORTING

BY THE VENTURER
Problem 1
Books of Omega (Joint venture)

Cash 3,000,000
Alpha, Capital 1,500,000
Bravo, Capital 1,500,000
Equipment 800,000
Cash 500,000
Equipment Loan 300,000
Materials 650,000
Accounts Payable 650,000
 Suggested Solutions to
Straight Problems

Salaries & wages 720,000

Cash 720,000
Cash 500,000
Bank Loan 500,000
Equipment Loan 100,000
Accounts Payable 420,000
Cash 520,000
 Suggested Solutions to
Straight Problems (Cont’n)
Books of Omega (Joint Venture)

Overhead Expenses 1,300,000

Cash 1,300,000
Depreciation Expense 80,000
Accumulated Depreciation 80,000
Work-in-Process 2,580,000
Salaries & Wages 720,000
Overhead expense 1,300,000
Depreciation Expense 80,000
Materials 480,000
Finished Goods 1,800,000
Work-in-process 1,800,000
Alpha, Capital 800,000
Bravo, Capital 800,000
Finished Goods 1,600,000
 Suggested Solutions to
Straight Problems (Cont’n)

Books of Alpha Venturer

Investments in JV 1,500,000
Cash 1,500,000

Inventory 800,000
Investment in JV 800,000
 Suggested Solutions to
Straight Problems (Cont’n)

Balance Sheet

Cash P 460,000
Materials 170,000
WIP 780,000
FG 200,000
Equipment 800,000
Accumulated Depreciation (80,000)
Total P 2,330,000

Accounts payable P 230,000

Equipment loan 200,000
Bank loan 500,000
Alpha, Capital 700,000
Bravo, Capital 700,000
Total P 2,330,000
 Suggested Solutions to
Straight Problems (Cont’n)

(1) WPPE – Proportionate Consolidation

Cash (P460,000x½) 230,000

Materials (P170,00x½) 85,000
WIP( P780,000x½) 390,000
FG (P200,000x½) 100,000
EQPT (P800,000x½) 400,000
AD (P80,000x½) 40,000
AP(P230,000x½) 115,000
Eqpt Loan (P200,000x½) 100,000
Bank Loan (P500,000x½) 250,000
Investment in JV 700,000

(2) Equity Method

Investment in JV (see books of Alpha) P700,000
 Suggested Solutions to
Straight Problems

Problem 2

(1) WPEE – Proportionate Consolidation Method

Expenses(P192,500/2) P 96,250
Cash(P45,000/2) 22,500
A/R(P200,000/2) 100,000
Inventory(P312,000/2) 156,250
PPE (P1,175,000/2) 587,500
Revenues(P250,000/2) P 125,000
A/D(P62,500/2) 31,250
Liabilities(P362,500/2) 181,250
Investment in JV 625,000
 Suggested Solutions to
Straight Problems (Cont’n)

(2) Equity Method – Journal entries

Investment in JV P 625,000
Cash P 625,000

Investment in JV 28,750
Profit in JV 28,750

Investment in JV, 12/31/08 P 653,750

JV Assets P 835,000
JV Liabilities 181,250 P 653,750
A. COST MODEL:
PARTICULARS
ENTITY L ENTITY M ENTITY N
Initial investment:
Investment in JV 64,000 58,000 37,000
Cash 64,000 58,000 37,000
Transaction cost:
Investment in JV 1,280 1,160 740
Cash 1,280 1,160 740
Cash dividends:
Dividend receivable 2,250 3,750 ---
Profit and loss 2,250 3,750 ---
Impairment loss:
Profit and loss --- --- 12,090*
Investment in JV --- --- 12,090
NET P & L P 2,250 P 3,750 P(12,090)
I in JV, 12/31 P 65,280 P59,160 P25,650

Impairment Loss: P37,740 - P25,650@ = P12,090

@: (P27,000 x 95%) = 25,650
B. FAIR VALUE
MODEL:
PARTICULARS ENTITY L ENTITY M ENTITY N
Initial investment:
Investment in JV 64,000 58,000 37,000
Cash 64,000 58,000 37,000
Transaction cost:
Profit and loss 1,280 1,160 740
Cash 1,280 1,160 740
Cash dividends:
Dividend
receivable 2,250 3,750 ---
Profit and loss 2,250 3,750 ---
Fair value
remeasurement:
Investment in JV 6,000 7,000 ---
Profit and loss 6,000 7,000 ---
Profit and loss --- --- 10,000
Investment in JV --- --- 10,000

NET P & L P 6,970 P 9,590 P(10,740)

I in JV, 12/31 P70,000 P65,000 P 27,000
C.. EQUITY
MODEL:
PARTICULARS ENTITY L ENTITY M ENTITY N
Initial investment:
Investment in JV 64,000 58,000 37,000
Cash 64,000 58,000 37,000
Transaction cost:
Investment in JV 1,280 1,160 740
Cash 1,280 1,160 740
Cash dividends:
Dividend receivable 2,250 3,750 ---
Investment in JV 2,250 3,750 ---
 ENTITY L ENTITY M ENTITY N
Share in Net profit:
Investment in JV 7,500 10,500 -
Profit and loss 7,500 10,500 -

Share in Net loss:

Profit and loss - - 5,000
Investment in JV - - 5,000
Impairment loss:
Profit and loss 4,030 4,160 7,090
Investment in JV 4,030 4,160 7,090
NET PROFIT and LOSS P 3,470 6,340 P(12,090)
INVESMENT in JV P 66,500 P 61,750 P 25,650

Impairment loss :
Entity L: 65,280 + 7,500 – 2,250 – 66,500* = 4,030
* 70,000 x .95 = 66,500

Entity M: 59,160 – 3,750 + 10,500 -61,750* = 4,160

* 65,000 x .95 = 61,750

Entity N: P37,740 - P5,000 - P25,650* = P7,090

* P27,000 x .95 = P25,650.
 Suggested Solutions to Straight Problems

Multiple Choice

1. D
Retained Earnings, beginning P 460,000
Net income from ABC own operations 760,000
ABC’s share in Net profit of
DEF Corp (P57,500 x 50%) 28,750
Retained Earnings, end P 1,248,750
 Suggested Solutions to Straight Problems

Multiple Choice

2. D
Venturer’s RE = [P920,000+P1,520,000+(P250,000–P192,500)] P2,497,500

RE. 1/1 (FEU) P 920,000

Add: FEU’s NET income P 1,520,000
Share in JV’s Net income(P250,000–P192,500)P 57,500
RE. 12/31 (FEU) P 2,497,500
3. D
Venturer’s initial contribution P 1,250,000
Add profit from Joint venture (250,000 – 192,500) 57,500
Venturer’s investment in joint venture, 12/31 P 1,307,500

Current assets = only FEU’s current assets P 1,830,000

 Balance Sheet
December 31, 2010

PROPORTIONATE CONSOLIDATION METHOD

Current Assets P 2,387,500

Plant Assets, net P 4,312,500
Total Assets P 6,700,000
Liabilities P 1,202,500
Ordinary Shares P 3,000,000
Retained Earnings P 2,497,500
Total Equities P 6,700,000
 Balance Sheet
December 31, 2010

EQUITY METHOD

Current Assets P 1,830,000

Plant Assets P 3,200,000
Investment in JV P 1,307,500
Total Assets P 6,337,500
Liabilities P 840,000
Ordinary Shares P 3,000,000
Retained Earnings P 2,497,500
Total P 6,337,500
4. C
Transaction cost P( 1,280)
Cash dividends 2,250
Fair value re-measurement 6,000
Net P 6,970
5. B
Transaction cost P 740)
Fair value re-measurement ( 10,000)
Total P( 10,740)
6. A
Cash dividends P 3,750
7. A
Cash dividends P 2,250
8. B
Net profit P 7,500
9. C
Net loss P( 5,000 )
Impairment loss ( 7,090 )
Total P( 12,090)
10. A
Initial investment P 37,000
Transaction cost 740
Impairment loss (12,090)
Investment in JV, 12/31 P 25,650
11. A
Initial investment P 37,000
Transaction cost 740
Net loss ( 5,000)
Impairment loss ( 7,090)
Investment in JV, 12/31 P 25,650
12. C
Initial investment P64,000
Fair value re-measurement 6,000
Investment in JV, 12/31 P 70,000
13. C
Cost model (Item #10) P 25,650
Equity model (Item #11) P 25,650