CPA REVIEW SCHOOL OF THE PHILIPPINES Manila ADVANCED FINANCIAL ACCOUNTING AND REPORTING JOINT ARRANGMENT GUERRERO / GERMAN / LIM / DE JESUS / FERRER / LACO / VALIX, Part ries 1. It is characterized by a contractual arrangement whereby two or more parties have joint control of the arrangement. a. Joint arrangement b. Joint operation ¢. Joint venture 4. Jointly controlled asset 2. Itis the contractually agreed sharing of control of an arrangement which exists only when decisions about relevant activities require unanimous consent of the parties sharing control. Control Significant influence Joint control Solidary control aes 3. Itis a type of joint arrangement whereby the parties that have joint control of the arrangement have right to the total assets and obligations for the total liabilities relating to the arrangement. a, Joint venture b. Jointly controlled asset ¢. Joint operation 4. Joint business 4, Itis a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. a. Joint venture b. Jointly controlled asset ¢. Joint operation 4. Joint business 5. What is the classification of the joint arrangement when the arrangement is structured without a separate vehicle such as when the rights of each party to the total assets and obligations for total liabilities relating to the arrangement are clearly established? It shall be classified as joint venture. It shall be classified as joint operation. Neither joint venture nor joint operation. It can be either a joint operation or joint venture depending on the company policy of the parties to the joint arrangement. aese 6. What is the classification of the joint arrangement when the assets and liabilities relating to the arrangement are held by a separate vehicle or when the arrangement is established with a separate vehicle? a. It shall be classified as joint venture. b. It shall be classified as joint operation. c. Neither joint venture nor joint operation. 4. It can be either a joint operation or joint venture depending on the legal form of the separate vehicle, terms of the contractual arrangement or other relevant facts and circumstances, 7. Under PERS 11, how shall the joint venturer account for its Investment in Joint Venture? a. Equity method b. Cost method c. Fair value method under IFRS 9 d. Proportionate consolidation 8617Page 2 8. Under PFRS 11, as an exception to the general rule of mandatory equity method accounting for Investment in Joint Venture, what is alternative treatment available to joint venturer for an investment in joint venture held or is held indirectly through an entity that is a venture capital organization, mutual trust fund, unit trust and similar entities including insurance-liked fund? a. It may elect to measure the investment in joint venture at fair value through profit or loss. b. It may elect to measure the investment in joint venture at fair value through other comprehensive income c. Itmay elect to measure the investment in joint venture at cost method, 4. It may elect to measure the investment in joint venture at proportionate consolidation. Under PFRS for SMEs, how shall the joint venturer account for its Investment in Joint Venture? a. Equity method b. Cost method c. Fair value through profit or loss method under PFRS 9 d. Any of the above e 10. Under PFRS 11, how shall the joint operator account for its interest in a joint operation? jint operator shall account for its interest under Equity Method. b. The joint operator shall account for its interest under Cost Method. ¢. The joint operator shall account for its interest using proportionate consolidation. d. The joint operator shall account for its interest by recognizing its assets, its liabilities, its revenue, its expenses and its shares in the jointly controlled assets, jointly incurred liabilities, jointly eamed revenue and jointly incurred expenses in accordance with the contractual arrangement. I. Problem Solving 1. On January 1, 2020, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C which has its fiscal and operational autonomy. The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will require the unanimous consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C. Entity A end Entity B invested P1,000,000 and P1,500,000, respectively, equivalent to 40:60 capital interest of Entity C. The financial statements of Entity C provided the following data for its two-year operation: Net income (loss) Dividends declared 2020 200,000 100,000 2021 (2,000,000) 7 1. What is the balance of Investment in Entity C to be reported by Entity A in its Statement of Financial Position on December 31, 2021? a. 1,080,000 b. 1,040,000 ce. 240,000 d. 200,000 2. What is the balance of Investment in Entity C to be reported by Entity B in its Statement of Financial Position on December 31, 2021? a. 1,500,000 b. 1,620,000 c.* 360,000 4. 900,000 8617| Page| 3 2. Entity A and Entity B incorporated Entity C to manufacture a microchip to be used by the incorporating entities as component for their final products of cellular phones and tablets. ‘The contractual agreement of the incorporating entities provided that the decisions on relevant activities ofEntity C will require the unanimous consent of both entities. Entity A and Entity B have rights to the assets, and obligations for the liabilities, relating to the arrangement. The ordinary shares of Entity C will be owned by Entity A and Entity B in the ratio of 60:40. At the end of first operation of Entity C, the financial statements provided the following data: Inventory 1,000,000 Accounts payable 2,000,000 Land 3,000,000 Note payable 1,000,000 Building 5,000,000 Loan payable 4,000,000 Share capital 1,000,000 Retained earnings _1,000,000 Sales revenue 5,000,000 The contractual agreement of Entity A and Entity B also provided for the following conceming the assets and liabilities of Entity C: Entity A owns the land and incurs the loan payable of Entity C. ¢ Entity B owns the building and incurs the note payable of Entity C. © The other assets and liabilities are owned or owed by Entity A and Entity B on the basis of their capital interest in Entity C. * The sales revenue of Entity C includes sales to Entity A and Entity B in the amount of P1,000,000 and P2,000,000, respectively. As of the end of the first year, Entity A and Entity B were able to resell 30% and 60% of the inventory coming from Entity C to third persons. . What is the amount of total assets to be reported by Entity A concerning its interest in Entity C? a. 5,400,000 b. 3,000,000 ¢. 3,600,000 4. 5,000,000 2. What is the amount of total liabilities to be reported by Entity B concerning its interest in Entity C? a. 1,800,000 b. 2,200,000 ©. 2,800,000 4, 2,400,000 3. What is the amount of sales revenue to be reported by Entity A concerning its interest in Entity C? a. 2,300,000 'b. 2,100,000 ¢. 3,000,000 d. 2,500,000 8617Page 4 3. On January 1, 2021, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C by investing P3,000,000 and P2,000,000 for capital interest ratio of 60:40. The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will require the ian consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C. ‘The financial statements of Entity C provided the following data for 2021: * Entity C reported net income of P1,000,000 for 2021 and paid cash dividends of P400,000 on December 31, 2021, © During 2021, Entity C sold inventory to Entity A with gross profit of P50,000. Eighty percent of those inventories were resold by Entity A to third persons during 2021 and the remainder was resold to third persons during 2022. On July 1, 2021, Entity C sold a machinery to Entity B at a loss of P20,000. At the time of sale, the machinery has remaining useful life of 2 years. ‘What is the investment income to be reported by Entity A for the year ended December 31, 2021? a. 603,000 b. 606,000 c. $94,000 d. 597,000 2. What is the balance of Investment in Entity C to be reported by Entity B on December 31, 2021? a. 2,246,000 b. 2,241,000 c. 2,238,000 4. 2,248,000 4. On January 1, 2020, Storm Inc, invested P2M cash in a joint venture for 50% interest, For the years ended December 31, 2020, 2021 and 2022, the joint venture reported the following net incomes and dividend distributions: Year Net Income/(Net Loss) | Dividend Distribution 2020 1,000,000 300,000 2021 (P6,000,000) : 2022 7,000,000 500,000, 1. What is the share in net loss or investment loss to be reported by Storm Inc. for the year ended December 31, 2021? a. 3,000,000 b. 2,500,000 ©. 2,350,000 4. 2,000,000 2. What is the book value of Investment in Joint Venture to be reported by Storm Inc. as of December 31, 2022? a 1,600,000 b. 2,600,000 ¢. 1,250,000 a. 1,450,000 8617a i 5. On January 1, 2021, Logan Inc., a small and medium enterprise (SME), invested P500,000 cashin a joint venture for 50% interest. For the year ended December 31, 2021, the joint venture reported net income of P200,000 and distributed cash dividend in the amount of P60,000. As of December 31, 2021, the fair value of the investment in joint venture is P600,000 and the estimated cost of disposal is 10% of fair value. The value in use of the investment is estimated at P550,000. 1. Under IFRS for SMEs, what is the book value of Investment in Joint Venture to be reported by Logan Ine. as of December 31, 2021 if the SME elects equity method? a. 550,000 b. 540,000 c. $70,000 d. 600,000 2. Under IFRS for SMEs, what is the book value of Investment in Joint Venture to be reported by Logan Inc. as of December 31, 2021 if the SME elects cost method? a. $50,000 b. 540,000 ¢. 570,000 d. 500,000 3. Under IFRS for SMEs, what is the bock value of Investment in Joint Venture to be reported by Logan Inc. as of December 31, 2021 if the SME elects fair value method? a. 550,000 b. 600,000 c. 570,000 d. 500,000 - END - 8617