On January 1, 2021, Entity MM together with another joint operator set up a separate
vehicle to undertake a joint operation. The arrangement provides for both parties to
have joint control over the separate vehicle. For its capital contribution, Entity MM has
recorded its interest in the joint operation at P300,000 being the amount of cash
contribution upfront. Apart from recording assets and liabilities in the joint operation
directly, Entity MM has rights to a 60% share in the property, plant and equipment of the
separate vehicle, a 50% share in the current assets and a 75% share of the liabilities
incurred by the separate vehicle. Its share of the revenue from the sale of the output
produced by the separate vehicle is 55%, while its share of the expenses incurred jointly
is 60%.
Extracts of the financial statements of the separate vehicle for the first year of operation
is as follows:
Revenue from the sole of outputs of the 1,000,000
vehicle
Less: Expenses
600,000
Net income from operations
400,000
Current assets
600,000
Property, plant and equipment.
1,000,000
Total Assets
1,600,000
Liabilities
P800,000
Capital
400,000
Net Income from operations
400,000
Total liabilities and capital
1,600,000
1. Determine Entity MM’s Cash in Joint Operation (Interests in Joint Operation)
(credit balance) arising from share in assets, liabilities, revenue and expenses:
a. 110,000
b. 240,000
c. 420,000
d. Nil
2. Determine Entity MM’s Cash in Joint Operation (Interests in Joint Operation)
ending balance:
a. 190,000
b. 540,000
c. 820,000
d. Nil
3. The share in net income/gross profit of Entity MM’s amounted to:
a. 300,000
b. 240,000
c. 220,000
d. 190,000
On September 30, 20x4 Roxas, Silverio and Tan agreed on a joint operation to sell their
common stock shares of the Golden Copper Mines. Gains and losses are to be shared
in proportion to the contributed shares.
Roxas contributes 6,000 shares, which had cost him P42 a share: Silverlo gave 10,000
shares which had cost P58 each and Tan 4,000 shares which had cost P62 per share.
The par value of the shares was P50 and when the operation began market value was
P40 a share. Tan was to manage the operation for a flat fee of 3,000 plus expenses.
On October 20 he sold 4,500 shares for P44 a share. On November 1, Golden Copper
distributed stock dividend of 20%. Tan sold 5,000 shares, ex-stock dividend, on
November 5 for P25 a share. On November 15, Golden Copper paid a cash dividend of
P1 per share. On November 22, he sold 6,000 shares for P28. On December 20, the
remainder of the shares was sold for P35 a share. Tan's expenses were P4,700.
4. The 20,000 shares contributed to the joint operation should be valued at:
a. 800,000
b. 1,000,000
c. 1,080,000
d. Some other answer
5. Assuming the joint operation is ended on December 31, the share of Roxas in
the loss of the operation would be:
a. 10,130
b. 11,130
c. 13,130
d. Some other answer
6. If a distribution of proceeds is made on December 31, the share of Silverio would
amount to:
a. 374,650
b. 378,500
c. 381,450
d. 385,300
Reyes and Santos formed a joint operation to acquire and sell a particular lot of
merchandise Reyes was to manage the operation and to furnish the capital, and the
operators were to share equal in any gain or loss. On June 10, 20x4. Santos sent
Reyes P10.000 cash, which was immediately used to purchase merchandise which cost
P10,000. Reyes paid freight of P240 on the merchandise purchased. On June 24, one
half merchandise was sold for P7,200 cash. Reves paid the cost of delivering
merchandise to customers, which amounted to P260. No further transactions occurred
on June 30, 2014.
7. The profit (loss) of the operation for the period June 10 - June 30, 20x4 is:
a. 1,820
b. 1,950
c. (1,700)
d. Some other answer
8. On June 30, 20x4 after recognizing the profit (loss) on the uncompleted operation,
the account of Santos on the books of Reyes will show a debit (credit) balance of:
a. (10,910)
b. (10,975)
c. 10,850
d. Some other answer.
Benin and Rey Sucat formed a joint operation on January 1, 20x4 to operate two stores
to be managed by each operator. They agreed to contribute cash as follows: Benin,
P30,000: Sucat, P20,000. Profits and losses are to be divided in the capital ratio. All the
operation transactions are for cash, and the cash receipts and disbursements of the
venture during the four-month period, handled through the operator’s bank accounts,
are as follows:
Benin
Sucat
Receipts
78,920
65,425
Disbursements
62,275
70,695
On April 30, 20x4, the remaining joint operation's non-cash assets in the hands of the
operators were sold for P60,000 cash. The operation was terminated and settlement
was made between Benin and Sucat.
9. The operation profit (loss) for the four-month period, after selling the remaining
non-cash assets, was:
a. 11,375
b. 21,375.
c. (31,375)
d. (38,625)
10. The P60,000 cash was divided between the two operators in the following
manner:
a. Benin, P16,180; Sucat, P43,820
b. Benin, P21,905; Sucat, P38,095
c. Benin, P26,180; Sucat, P33,820
d. Benin, P48,095; Sucat, P11,905
Ace Company purchases 40% of Basket Company on January 1 for P500,000 that carry
voting rights at a general meeting of shareholders of Basket Company. Ace Company
and Blake Company immediately agreed to share control (wherein unanimous consent
needed to all the parties involved) over Basket Company. Basket reports assets on that
date of P1,400,000 with labilities of P500,000. One building with a seven-year life is
undervalued on Basket's books by P140,000. Also, Basket's book value for its
trademark (10-year life) is undervalued by P210,000. During the year, Basket reports
net income of P90,000, while paying dividends of P30,000.
11. What is the Investment in Basket Company balance (equity method) in Ace's
financial records as of December 31?
a. P504,000
b. P507,600
c. P513,900
d. P516,000
12. The income from Investment in Basket Company in Ace's financial records as of
December 31?
a. P36,000
b. P19,600
c. P12,000
d. P 7,600
13. Richardson Corporation purchased 25 percent of Dover Company's stock in
January, 20x5 for P400,000. At the acquisition date, Dover has equipment with a
market value P90,000 greater than book value. The equipment has an estimated
remaining life of 10 years. In 20x5, Dover has net income of P160,000 and pays
P50,000 of dividends. What is the balance in the investment account on
Richardson's financial records at the end of 20x5?
a. P400,000
b. P425,250
c. P427,500
d. P437,750
Vat Company acquired a 30 percent interest in the voting stock of Zel Company for
P331,000 on January 1, 20x1, when Zel's stockholder’s equity consisted of capital stock
of P600,000 and retained earnings of P400,000. At the time of Vat's investment, Zel's
assets and liabilities were recorded at their fair values, except for inventories that were
undervalued by P30,000 and a building with a 10-year remaining useful life that was
overvalued by P60,000. Zel has income for 20x1 of P100,000 and pays dividends of
P50,000. Assume undervalued inventories are sold in 20x1. Using equity method.
14. Compute Vat's income from Zel for 20x1.
a. Nil
b. 15,000
c. 22,800
d. 30,000
15. What is the balance of Vat’s Investment in Zel account at December 31, 20x1?
a. 316,000
b. 331,000
c. 338,800
d. 353,800
16. What is Vat's share of Zel's recorded net assets at December 31, 20x1?
a. 300,000
b. 330,000
c. 315,000
d. 338,800
S Co. and T Inc. formed ST Company on January 1,20x4. S Co. invested equipment
with a carrying amount of P140,000 and a fair value of P490,000 for a 40% interest in
ST Company, while T Inc. contributes technology with a fair value of P735,000 for a 60%
interest in ST Company. The equipment has an estimated life of 10 years. On
December 31, 20x4, ST Company reported a net income of P142,800. Assume that the
transaction does have commercial substance in this studies because S Co. owned
equipment before its contribution to the joint venture but indirect owned a portion of
equipment and technology after the contribution
17. Determine the unrealized gain and realized gain on transfer to ST Company (the
separate vehicle) on January 1, 20x4:
Unrealized Gain
Realized Gain
a.
210,000
140,000
b.
140,000
210,000
c.
350,000
0
d.
0
350,000
18. Determine the realized gain in income statement on transfer of equipment to ST
Company on December 31, 20x4.
a. 35,000
b. 175,000
c. 210,000
d. 245,000
On January 1, 20x1, Amco Lid. and Newstar Inc. formed Bearcat Resources, a joint
venture. Newstar contributed miscellaneous assets with a fair value of P825,000 for a
60% interest in the venture. Amco contributed plant and equipment with a carrying
amount of P300,000 and a fair value of P1,000,000 and received a 40% interest in the
venture plus P450,000 in cash. On December 31, 20x1, Bearcat reported a profit of
P180,000 and declared a dividend of P75,000. Amco has a December 31 year-end and
will account for its 40% interest using the equity method (Assume a 20-year useful life
for the plant and equipment.)
Assume that there was no cash in the assets contributed by Newstar and that the cash
received by Amco had been borrowed by Bearcat. Also, assume that the transaction did
not have commercial substance when Amco transferred the plant and equipment to the
joint venture.
19. The investment account in Albert's financial records at the end of 20x1:
a. 520,000
b. 550,000
c. 592,000
d. 622,000
20. The investment income in Albert's financial records at the end of 20x1:
a. Nil
b. 72,000
c. 75,000
d. 180,000
N C. P 75,000
b. 72.000
d. P180.000
21. EEI and MDC formed a joint operation to produce hallow blocks and sell
them to small contractors. They agreed to share equally on all matters
relating to the operation. EEI contributed P2,000,000 cash while MDC
contributed equipment costing P 2,000,000 with accumulated depreciation
of P500,000. The current fair market value of the equipment at the time
of contribution amounted to P 2,000,000.
How much gain or (loss) shall be recognized by the contributor?
A. 250,000
C. (250,000)
B. 500,000
D. (500,000)
Petron (SME A) and Shell (SME B) each acquired 30% of the outstanding
shares of CALTEXT for P 200,000 plus transaction cost of P2,000. Petrona and
Shella agreed a joint control over the CALTEXT. During the year, CALTEXT
reported the following:

Profit for the year - P 20,000
 Payment of dividends - P4,000.
It was determined after a thorough test that due to economic changes, there
was an adverse effect to CALTEXT during the latter quarter of the year. Hence,
there is impairment of the investment in the said entity.
Petron elected to carry the investment in CALTEXT using EQUITY Method
and the Fair Value of CALTEXT at year end is P 210,000 and cost to sell
amounts to P3,000.
22. How much should be initially recognized by Petron (SME A) s investment in
CALTEXT?
A. 200,000
B. 202,000
C. 206,800
D. 207,000
23. How much is the amount of impairment loss recognized?
A. 0
B. 200
C. 4,800
D. 7,000
24. How much is the profit or loss related to investment?
A. 200
B. 1,200
C. 4,800
D. 6,000
25. How much is the carrying amount of investment as of year-end?
A. 200,000
B. 202,000
C. 206,800
D. 207,000
26. Two entities established a business. The contractual agreement provided that the
relevant activities of the business will require unanimous consent of the two
parties. The business is not incorporated before SEC. The two parties equally
own interest in the said business. How should the two parties account for their
investment?
a. Proportionate consolidation
b. Joint operation
c. Joint venture
d. Business combination
27. Two entities established a joint arrangement in an incorporated entity. The assets
and liabilities of the entity will be in the name of the incorporated entity. The
activities of the arrangement will be decided by its own board of directors. The
rights of the two parties are limited only to the net assets of incorporated entity.
How should the two parties account for their investment?
a. Proportionate consolidation
b. Joint operation
c. Joint venture
d. Business combination
28. In a joint arrangement, which of the following establishes joint control by the
parties?
a. mutual sharing of control
c. contractual arrangement
b. ownership interest of more than 20%
d. stock certificate
29. A joint arrangement in which the assets and liabilities relating to the arrangement
are held in a separate vehicle.
a. joint operation
c. joint arrangement
b. joint venture
d. can be either a or b