Page |1
Chapter 6
Joint Arrangements
PROBLEM 1: TRUE OR FALSE
1. FALSE – it is sufficient that at least two parties have joint
control
2. FALSE – joint operation
3. FALSE – not always
4. FALSE – joint operation
5. FALSE – joint operators
6. FALSE
7. TRUE
8. FALSE – PAS 28 only. The joint venturer applies PFRS 11 only
to determine the type of joint arrangement he is in.
9. FALSE – initially measured at cost
10. TRUE
PROBLEM 2: MULTIPLE CHOICE – THEORY
1. C
2. A
3. D
4. D
5. C
6. A
7. D
8. D
9. B
10. C - Pulham uses the equity method rather than consolidation.
Accordingly, the receivable will not be eliminated in Pullham’s
statement of financial position.
Page |2
PROBLEM 3: EXERCISES
1. Solutions:
I.
No separate books
(a) Journal entries:
a.
b.
c.
d
.
e.
Books of A
Joint operation 420
Inventory
400
Cash
20
Joint operation 400
Payable to B
400
Joint operation 100
Payable to C 100
Receivable
from C
1,600
Joint operation 1,600
Joint operation 110
Payable to C
110
Books of B
Joint operation 420
Payable to A 420
Books of C
Joint operation 420
Payable to A
420
Joint operation 400
Cash
400
Joint operation 100
Payable to C 100
JO – Cash
400
Payable to B 400
Joint operation 500
JO – Cash
400
Accts. payable
100
Receivable
JO - Cash 1,600
from C
1,600
Joint
Joint operation1,600
operation
1,600
Joint operation 110
Joint operation 110
Payable to C 110
Cash
110
(b) Joint operation profit or loss:
Joint Operation
(a) Mdse. contribution of A 42
0
(c) Purchases
50
0
(f) Expenses
11
0
1,600
(e) Sales
60
630
Unsold merchandise
Credit balance Profit
(c) Cash settlement:
Joint Operation – A
(a)
420
(b)
P/L (630 ÷
3)
Receipt
P/L (630 ÷
210
630
3)
Receipt
Joint Operation – C
(c)
100
(f)
110
P/L (630 ÷
3)
Net
Joint Operation – B
400
210
360
60
EI
210
610
Page |3
Receipt
Optional reconciliation:
JO-Cash (held by C)
40
(b)
400
0
(c)
1,60
(d)
0
Balance before 1,60
distribution
0
63 Payment to
0
A
61
0
Payment to B
Balance retained by C
360
II.
Separate books
(a) Journal entries:
a.
Books of A
Joint operation 420
Inventory
400
Cash
20
b.
Joint operation 100
Accts. payable 100
d
.
e.
b.
c.
d
.
e.
Books of C
Joint operation 400
Cash
400
c.
a.
Books of B
Joint operation 110
Cash
110
JO Books
Inventory
420
A, Capital
420
Cash
400
B, Capital
400
Purchases
500
Cash
400
C, Capital
100
Cash
1,600
Sales
1,600
Expenses
110
C, Capital
110
Page |4
(b) Joint operation profit or loss
Sales
COGS:
Inventory, beg
420
Purchases
500
TGAS
920
Inventory, end.
(60)
1,600
(860)
Gross profit
Expenses
740
(110)
Profit before mgmt. fee & bonus
630
(c) Cash settlement:
A,
Capital
420
210
630
B,
Capital
(a)
P/L (630 ÷
3)
400
Receipt
610
210
(b)
P/L (630 ÷
3)
Receipt
C,
Capital
EI
60
100
(c)
110
(e)
P/L (630 ÷
3)
Net
Receipt
210
360
2. Solution:
Initial investment
Investment in Joint Venture
1,000,00
0
240,00 Sh. in loss (720K x 33
0 1/3%)
760,00
0 12/31/x1
Page |5
PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL
1. D
Solution:
Purchases – A
Purchases – B
Expenses – A
Loss - debit balance
Joint
operation
100
120
80
60
200
10
190
Allocation to:
Loss during the year
Commission on purchases:
(10% x 100) – A
(10% x 80) – B
Commission on sales:
(20% x 120) – A
(20% x 60) – B
Loss to be allocated equally
Allocation: (244 ÷ 2)
Net share - as allocated
Sales - A
Sales - B
Other income - B
A
B
10
8
24
12
(122)
(88)
(122)
(102)
Totals
(190)
(10)
(8)
(24)
(12)
(244)
244
-
Joint operation - A
Purchases
Expenses
100
200
Cash settlement receipt
92
120
88
Collections on
sales
Net share in loss
2. A
Solution:
Joint Operation
Contributions (100 + 120 +
300
80)
Expenses (paid from JO
240
?
Sales
cash)
360
Bal. before closing (100 + 120 580)
Page |6
Joint Operation
Contributions (100 + 120 +
300
80)
Expenses (paid from JO
240
900
Sales (squeeze)
360
Bal. before closing (100 + 120 580)
cash)
3. A
Solution:
 The joint operation profit is computed as follows:
Joint Operation
Contributions (100 + 120 +
300
80)
Expenses (paid from JO
240
900
Sales
60
420
Unsold inventory
Profit before salary and bonus
cash)
 The profit is allocated as follows:
Easy
Averag
e
Profit before salary and
bonus
Allocation:
1. Salary
2. Bonus (A)
3. Allocation of remaining profit
(420K – 6K – 54K) = 360K; (360K ÷
3)
As allocated
Difficul
t
420
6
54
120
120
120
120
120
180
(A)
Profit before salary and bonus
Difficult’s salary
Difficult’s bonus (B)
Profit after salary and bonus
420
(6)
(54)
360
(420,000 – 6,000) = 414,000 profit after salary but before bonus;
P
B = P 1+
Br
B = 414,000 – (414,000 ÷ 1.15%) = 54,000
(B)
Total
6
54
360
420
Page |7
Joint Operation – Small
Contributio
n
100
P/L
120
Receipt
220
Joint Operation – Medium
Contributio
n
120
P/L
120
Receipt
240
 Total payment to Easy and Average: 220 + 240 = 460
Alternative solution:
Unsold inventory
Total payment to Easy and
Medium
Receivable from Difficult
580
60
180
P/L
460
4. A
Solution:
Debit balance
Joint
operation
5
17
12
Unsold merchandise
(squeeze)
Profit - credit balance (₱4 x 3)
5. C
Solution:
Joint operation
Debit balance
(squeeze)
7
18
11
Unsold merchandise
Profit - credit balance
6. C
Solution:
Joint Operation
Account with A
Account with B
4
12
14
22
20
Account with C
Unsold merchandise
Profit – credit balance
Page |8
Joint Operation –
B
Payable to B
12
P/L
6
Joint Operation – A
Payable to A
4
P/L
8 22 Unsold inventory
1
0
Payment
Receipt
18
Joint Operation – C
14 Receivable from C
P/L
6
8 Payment
*PL:
Profit
Allocation:
1. Bonus (20 x 10%)
3. Allocation of remaining profit
A
B
2
Total
20
2
6
8
(20 – 2 = 18; (18 ÷ 3)
As allocated
C
6
6
6
6
18
20
7. A
Solution:
Joint Operation
Account with C
6.5
2.5
4
0
Account with A
Account with B
Profit
Joint Operation – A
Joint Operation – B
2.
Receivable from
5
Receivable from A
4 B
P/
P/L
0
L
0
2.
5
Payment
4 Payment
Joint Operation – C
Payable to
C 6.5
P/L
0
Receipt 6.5
Page |9
8. D
Solution:
Account with LL
Account with
MM
Bonus to LL
Allocation of
balance
As allocated
Joint operation
16,000
18,000
32,000
42,000
12,000
Account with NN
Unused supplies
Profit - excess credit
LL
1,200
MM
NN
Total
1,200
3,600
4,800
3,600
3,600
3,600
3,600
10,800
12,000
The net cash settlements are computed as follows:
Balance
Sh. In profit
Joint operation - LL
16,000
4,800 42,000 Inventory taken
Payment - excess
21,200 credit
Joint operation – MM
Balance
32,000
Sh. In profit
3,600
Receipt - excess debit
35,600
Sh. In profit
Inventory taken
Joint operation – NN
18,000 Balance
3,600
Inventory taken
Payment - excess
14,400 credit
LL, the designated manager and holder of JO-Cash, is the one who
will distribute the final cash settlement as follows:
1. NN gives LL 14,400
2. LL pays MM 35,600 (14,400 from NN + 21,200 of LL)
9. B
Solution:
P a g e | 10
Joint
operation
30
15
45
Contributions
Share in profit (45 ÷ 3)
Cash settlement – receipt
Credit bal. (8 + 10 + 12)
Unsold merchandise (5 + 6 +
4)
Profit - net credit
balance
Joint operation – A
10
5
15
20
Inventory taken
10. A - 1M own revenues only. Tech Co. uses the equity method to
account for its investment in joint venture.
P a g e | 11
PROBLEM 5: FOR CLASSROOM DISCUSSION
Case 1: No separate records are maintained
1. Requirements:
a. Prepare the journal entries for transactions (a) to (f).
b. Compute for the profit after management fee and bonus.
c. Determine the cash settlements to the joint operators.
Solution:
Requirement (a): Journal entries
* No entries because the cash used on the purchase and freight-in are already
reflected in Small’s and Medium’s books under entries (a) and (c).
** “Receivable from Large” is credited because, by paying the expenses out of
the JO-Cash, Large’s cash accountability is reduced.
Requirement (b): Profit after management fee and bonus
Joint Operation
(b) Mdse. contribution of Med. 120K
(c) Purchases
180K
(f) Expenses
(1)
240K
900
K
60
K
420
K
(e) Sales
Unsold merchandise (1)
Profit before fee & bonus
(160K purchases + 20K freight-in) x 1/3 = 60K
Profit before management fee and bonus
Large's management fee
Large's bonus (2)
Profit after management fee and bonus
420,000
(6,000)
(54,000)
360,000
P a g e | 12
(420,000 – 6,000) = 414,000 profit after management fee but before bonus;
P
B = P 1+
Br
B = 414,000 – (414,000 ÷ 1.15%) = 54,000
(2)
Shortcut: (420,000 – 6,000) = 414,000 ÷ 115% = 360,000
Requirement (c): Cash settlement
Step 1: Allocate the profit or loss
Smal
l
Mediu
m
Profit before salary and
bonus
Allocation:
1. Salary
2. Bonus (see requirement ‘b’)
3. Allocation of remaining profit
(420K – 6K – 54K) = 360K; (360K ÷
3)
As allocated
Large
Total
420K
6K
54K
120K
120K
120K
120K
120K
180K
6K
54K
360K
420K
Step 2: Make T-accounts
Joint Operation – Small
Contributio
n
100K
120
P/L
K
Receipt 220K
Joint Operation – Medium
Contributio
n
120K
P/L
Receipt
120K
240K
Joint Operation – Large
Contributio
n
80K
180
60
P/L
K
K
Unsold inventory (see requirement ‘b’)
Receipt
200K

Checking:
Cash contribution of
Small
Cash contribution of
JO – Cash
100
180
K
K
80
240
Purchases & freight-in
Expenses paid out of JO-Cash
P a g e | 13
Large
K
900
K
Sales
K
220
K
240
K
200
K
Cash settlement to Small
Cash settlement to Medium
Balance retained by Large
Alternative solution:
Payable to S (in M’s & L’s
books)
100K
(a)
120K
P/L
Receip
220K
t
Payable to L (in S’s & L’s books)
80K
(c)
E
I
60K
180K
P/L
200K
Receipt
Payable to M (in S’s & L’s books)
120K
(b)
120K
P/L
Receip
240K
t
Receivable from L (in S’s & M’s books)
(e)
900K
240K
Paymen
t
(f)
660K
* 660K payment – 200K receipt = 460K payment to Small and Medium
(i.e., 220K and 240K, respectively)
 In the settlement, Large pays Small ₱220,000 and Medium
₱240,000, and retains the remaining ₱200,000 JO-Cash.
Case 2: Separate records are maintained
2. Requirements:
a. Prepare the journal entries for transactions (a) to (f).
b. Compute for the profit after management fee and bonus.
c. Determine the cash settlements to the joint operators.
Requirement (a): Journal entries
P a g e | 14
Requirement (b): Profit after management fee and bonus
Sales
COGS:
Inventory, beg.
Purchases & freight-in
TGAS
Invty., end. (160K + 20K) x 1/3
900,000
120,000
180,000
300,000
(60,000)
(240,000)
660,000
(240,000)
Gross profit
Expenses
Profit before mgmt. fee & bonus
420,000
Profit before management fee and bonus
Large's management fee
Large's bonus (2)
Profit after management fee and bonus
420,000
(6,000)
(54,000)
360,000
(420,000 – 6,000) = 414,000 profit after management fee but before bonus;
P
B = P 1+
Br
B = 414,000 – (414,000 ÷ 1.15%) = 54,000
(2)
Requirement (c): Cash settlement
Joint Operation – Small
Contributio
n
100K
Joint Operation – Medium
Contributio
n
120K
P a g e | 15
P/L
Receipt
120
K
220K
P/L
Receipt
120K
240K
Joint Operation – Large
Contributio
n
80K
180
60
P/L
K
K
Unsold inventory (see requirement ‘b’)
Receipt
200K
Smal
l
PL:
Mediu
m
Profit before salary and
bonus
Allocation:
1. Salary
2. Bonus (see requirement ‘b’)
3. Allocation of remaining profit
(420K – 6K – 54K) = 360K; (360K ÷
3)
As allocated
Large
Total
420K
6K
54K
120K
120K
120K
120K
120K
180K
6K
54K
360K
420K
Alternative solution:
Small, Capital
100K
(a)
120K
P/L
Receip
220K
t
Medium, Capital
120K
120K
Large, Capital
80K
(c)
E
I
60K
180K
200K
P/L
Receipt
3. Solution:
Initial investment
Investment in Joint Venture
220,00
240K
(b)
P/L
Receip
t
P a g e | 16
Sh. in profit (800K x 40%)
0
320,00
0
200,000
340,000
Dividends (500K x
40%)
12/31/x1
P a g e | 17
PROBLEM 6: MULTIPLE CHOICE – PFRS FOR SMEs
1. D
2. A
3. B
4. D
5. C
6. B
7. D
Solution:
20x1
20x2
20x3
Cost (100K + 1K transaction cost)
Fair value
Costs to sell
Fair value less costs to sell
101,000
102,000
(4,000)
98,000
101,000
110,000
(4,000)
106,000
101,000
90,000
(4,000)
86,000
Measurement - lower amount
98,000
101,000
86,000
8. E – at the year-end fair values given in the problem, excluding
costs to sell.
9. C
10. D