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    AFAR-04-Joint Arrangements

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    ChristianAquino
    ABC and XYZ formed a joint arrangement to produce and sell construction materials. ABC contributed cash of P5 million while XYZ contributed equipment worth P6 million with a fair value of P5 million. The equipment has a remaining useful life of 7 years. The parties have rights to the joint arrangement's assets and obligations for its liabilities. ABC and XYZ set up a separate vehicle for their joint arrangement. ABC has a 45% interest and rights to the equipment while XYZ has a 55% interest and rights to some assets and obligations for some liabilities. The statement of financial position of the separate vehicle is provided. ABC invested P500,000 for a 30% interest in a joint venture with XYZ. The joint venture

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    AFAR-04-Joint Arrangements

    Uploaded by

    ChristianAquino
    113 views2 pages
    ABC and XYZ formed a joint arrangement to produce and sell construction materials. ABC contributed cash of P5 million while XYZ contributed equipment worth P6 million with a fair value of P5 million. The equipment has a remaining useful life of 7 years. The parties have rights to the joint arrangement's assets and obligations for its liabilities. ABC and XYZ set up a separate vehicle for their joint arrangement. ABC has a 45% interest and rights to the equipment while XYZ has a 55% interest and rights to some assets and obligations for some liabilities. The statement of financial position of the separate vehicle is provided. ABC invested P500,000 for a 30% interest in a joint venture with XYZ. The joint venture

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    ABC and XYZ formed a joint arrangement to produce and sell construction materials. ABC contributed cash of P5 million while XYZ contributed equipment worth P6 million with a fair value of P5 million. The equipment has a remaining useful life of 7 years. The parties have rights to the joint arrangement's assets and obligations for its liabilities. ABC and XYZ set up a separate vehicle for their joint arrangement. ABC has a 45% interest and rights to the equipment while XYZ has a 55% interest and rights to some assets and obligations for some liabilities. The statement of financial position of the separate vehicle is provided. ABC invested P500,000 for a 30% interest in a joint venture with XYZ. The joint venture

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    113 views2 pages

    AFAR-04-Joint Arrangements

    Uploaded by

    ChristianAquino
    ABC and XYZ formed a joint arrangement to produce and sell construction materials. ABC contributed cash of P5 million while XYZ contributed equipment worth P6 million with a fair value of P5 million. The equipment has a remaining useful life of 7 years. The parties have rights to the joint arrangement's assets and obligations for its liabilities. ABC and XYZ set up a separate vehicle for their joint arrangement. ABC has a 45% interest and rights to the equipment while XYZ has a 55% interest and rights to some assets and obligations for some liabilities. The statement of financial position of the separate vehicle is provided. ABC invested P500,000 for a 30% interest in a joint venture with XYZ. The joint venture

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    © All Rights Reserved
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    ADVANCED FINANCIAL ACCOUNTING AND REPORTING

    FAR EASTERN UNIVERSITY – INTEGRATED REVIEW


    AFAR-04 JOINT ARRANGEMENTS

    Problem 1:
    On January 1, 2022, ABC and XYZ formed a joint arrangement to produce special construction materials and
    sell them to various property developers. ABC and XYZ agreed to share equally in the profits to be generated
    from the arrangement. The following assets were contributed by the parties:
    ABC
    Cash P5,000,000
    XYZ
    Equipment (at historical cost) 6,000,000

    The equipment was acquired on January 1, 2019 and has a remaining useful life of 7 years on the date of the
    formation of the joint arrangement and estimated residual value of P600,000. The parties have the rights over
    the assets of the arrangement and obligations to the liabilities of the arrangement. The equipment had a fair
    value of P5,000,000 at the time of formation of the arrangement.

    Required: Prepare the necessary journal entries to record the contribution of each party.

    Problem 2:
    ABC and XYZ set up a joint arrangement through a separate vehicle. The contractual arrangement between
    the parties establishes joint control of the relevant activities of the joint arrangement and legal form of the
    entity does not confer separation between the parties and the separate vehicle.

    ABC and XYZ agreed to have a 45:55 ratio of the equity interest in the separate vehicle. Under the
    contractual agreement, ABC has the rights to the equipment and obligation to pay the notes payable while
    XYZ has the rights to 60% of the accounts receivable, 50% of the land and obligations to 70% of the
    accounts payable of the separate vehicle. The rights and obligations over the remaining assets and obligations
    shall be in proportion to their equity interest.

    The statement of financial position of the separate vehicle presents the following:
    Assets Liabilities and
    Shareholders’ Equity
    Cash P 1,200,000 Accounts payable P 2,000,000
    Accounts receivable 850,000 Salaries payable 500,000
    Inventory 2,000,000 Notes payable 4,500,000
    Land 8,000,000 Other liabilities 550,000
    Building 4,000,000 Share capital 5,000,000
    Equipment 1,500,000 Retained earnings 5,000,000
    Total P17,550,000 Total P17,550,000

    Requirements:
    1. How much of the total assets will be presented by ABC in his separate financial statements?
    2. How much of the total liabilities will be presented by XYZ in his separate financial statements?
    Problem 3:
    On January 3, 2022, ABC Co. entered into a joint arrangement which was appropriately classified as a joint
    venture by investing P500,000 to obtain a 30% interest over XYZ Co. During the year, XYZ Co. reported the
    following:
    Profit P1,000,000
    Other comprehensive income 500,000
    Dividends 600,000

    Requirements:
    1. How much is the investment income to be reported by ABC Co.?
    2. How much is the carrying amount of the investment to be reported by ABC Co. as of December 31,
    2022?

    Problem 4:
    ABC Co. owns 20% in a joint venture. In 2022, ABC sold inventory to the joint venture for P100,000 with a
    40% gross profit rate. Only 30% was sold during 2022 and the remainder was sold in 2023. The joint venture
    reported profits of P1,000,000 and P1,500,000 in 2022 and 2023, respectively.

    Requirements:
    1. How much is the investment income of ABC Co. for 2022?
    2. How much is the investment income of ABC Co. for 2023?

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