AST: Joint Arrangements and Joint Ventures, November 16, 2023
Answer the following exercises.
The real estate companies, R and S (the parties) set up a separate vehicle (entity X) for the purpose of
acquiring and operating a shopping center. The contractual arrangements between the parties
establishes joint control of the activities that are conducted by entity X. The main feature of entity X’s
legal form is that entity, not the parties, has right to the assets, and obligations for the liabilities, relating
to the arrangement. These activities include the rental of the retail units, managing the car park,
maintaining the center and its equipment, such as lifts, and building the reputation and customer base
for the center as a whole.
The terms of the contractual arrangement are such that:
a) Entity X owns the shopping center. The contractual arrangement does not specify that the
parties have rights to the shopping center.
b) The parties are not liable I respect of the liabilities of entity X, if entity X is unable to pay any its
liabilities, the liability of each to any third party will be limited to the parties’ unpaid
contribution.
c) The parties have the right to sell or pledge their interests in entity X.
d) Each party receives a share of the income from the shopping center (which is the rental income
net of the operating costs) in accordance with its interests in entity X.
Transactions of the contractual arrangement for 2015 and 2016 follow:
2015:
 Co.R and Co.S contributed P10 million each for a one-half interest in the net assets of entity X.
 Organization expenses incurred amounts to P100,000.
 Entity X acquired land at a cost of P2 million.
 Constructed a building (shopping center) at a cost of P15 million.
 Operating expenses for the year amounts to P1 million.
 Rental income collected from the tenants P10 million.
 Net income or loss is distributed to the ventures in accordance with their interest.
2016:



Operating expenses (including depreciation) incurred for the year, P3.5 million
Rental income collected for the year, P12 million
Each venturer receives a share of the income or loss from rental income net of the operating
expenses.
Questions:
1. What is the interest of Co. R in the joint venture as of December 31, 2015?
2. What is the net income (loss) of Entity X on December 31, 2016?
3. What is the interest of Co. S in the joint arrangement as of December 31, 2016?