AFAR 01_JOINT ARRANGEMENTS
AFAR01
–
BATCH 2020
JOINT ARRANGEMENTS
RELATED STANDARDS – PFRS 11 – JOINT ARRANGEMENTS; PAS 28 –
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
TOPIC OUTLINE
Definition of Terms
Basic Concepts
JOINT ARRANGEMENTS
Types of Joint
Arrangements
Full PFRS
Accounting for Joint
Arrangements
PFRS for SMEs
Presentation and
Disclosure
LECTURE NOTES
BASIC CONCEPTS
JOINT ARRANGEMENTS
JOINT CONTROL
-
an arrangement of which two or more parties have joint
control.
the contractually agreed sharing of control of an
arrangement which exists only when decisions about the
relevant activities require UNANIMOUS CONSENT of the
parties sharing control.
NOTES:
(1) In contrast with significant influence and control, joint control is obtained by an investor through
contractual agreement with fellow investors. No sole joint operator or venture obtains leverage
over another joint operator or joint venture in respect of voting rights over financial and
operating decisions.
(2) Joint control exists when all of the parties to the contractual arrangement act collectively (or
together) in directing the activities that significantly affect the returns of the arrangement.
TYPES OF JOINT ARRANGEMENT
The following are the types of joint arrangements under PFRS 11:
(a) JOINT OPERATION – is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement.
Those parties are called JOINT OPERATORS.
(b) JOINT VENTURE - is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement. Those parties are called JOINT
VENTURERS.
An entity applies judgment when determining the type of joint arrangement in which it is involved. Such
judgment shall be made as follows:
(1) Determine the type of joint arrangement by considering the entity’s rights and obligations arising
from the arrangement.
(2) Assess the rights and obligations by considering the following:
(a) Structure and legal form of the arrangement,
NOTE: A joint arrangement that is NOT structured through a SEPARATE VEHICLE is a JOINT
OPERATION. A joint arrangement in which assets and liabilities relating to the arrangement are
held in a SEPARATE VEHICLE can EITHER be JOINT VENTURE or JOINT OPERATION. A separate
vehicle is a separately identifiable financial structure, including separate legal entities or entities
recognized by statute, regardless of whether those entities have a legal personality.
(b) Terms of the contractual agreement,
(c) Other facts and circumstances
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ACCOUNTING FOR JOINT ARRANGEMENTS
SUMMARY OF ACCOUNTING TREATMENTS (FULL PFRS)
APPLICABLE
TYPE OF
ACCOUNTING
REPORTING
INVESTMENT
TREATMENT
STANDARDS
Recognize own assets,
liabilities, revenues and
PFRS 11 AND OTHER
expenses plus share in
JOINT OPERATION
RELEVANT PFRSs
assets, liabilities,
JOINT CONTROL
revenues and expenses in
joint operation
JOINT VENTURE
PFRS 11 PAS 28
Equity Method
NATURE OF
RELATIONSHIP
WITH INVESTEE
ACCOUNTING FOR JOINT OPERATION (NO SEPARATE RECORDS ARE MAINTAINED)
No separate records are maintained for a joint operation usually if it is short-lived. In order to assess the
performance of the joint operation, management accounts are prepared.
Management accounts are accounts used for internal reporting purposes only. These are closed or
eliminated when general purpose financial statements are prepared. A management account “JOINT
OPERATION” is used to assess the financial performance of the entity. The following is the T-account of the
joint operation account.
Merchandise Contributions
Joint Operation
xx Merchandise Withdrawals
Purchase returns, discounts and
xx allowances
Purchases and Freight-in
Sales returns, discounts and
allowances
xx
Expenses
xx
Net loss
xx
NOTE: The T-account shown above
xx
xx
Sales and other income items
xx
Unsold merchandise
xx
Net income
xx
is similar to an income summary account.
Each joint operator shall set-up a joint operation account and personal accounts (i.e., receivable or
payable) of other joint operators in his books.
Any cash received or paid by the manager of a joint operation is recorded by the manager in cash account
which may be described as “joint operation – cash (JO-Cash)” account.
ACCOUNTING FOR JOINT OPERATION (SEPARATE RECORDS ARE MAINTAINED)
Joint operators may want to set-up separate records for the joint operation. The separate records will be
kept by one of the joint operators – normally the appointed manager.
Each joint operator may set-up an “Interest in Joint Operation” account which will be used by each joint
operator in recording his own investments withdrawals and share in profits or losses of the joint operation.
Interest in Joint Operation
x
Contributions and Investments
x Sales and other income received
xx
Cost and expenses paid for the
x Withdrawals of contributions or
joint operation
x investments
xx
Share in the profit of joint
x Share in loss of the joint
operation
x operation
xx
NOTE: A DEBIT BALANCE in the T-account means cash RECEIPT (receivable) while a CREDIT BALANCE
means cash PAYMENT (payable) on cash settlement of the joint operation.
ACCOUNTING FOR JOINT VENTURES
An entity shall apply PFRS 11 first to determine the type of arrangement in which it is involved. If the
entity determines that it has an interest in a joint venture, the entity shall recognize its interest as an
investment and account for it using EQUITY METHOD in accordance with PAS 28.
Under equity method, the investment is initially recognized at cost and adjusted thereafter for the post
acquisition change in the investor’s share of net assets of the investee.
Investment in Associate
xx Share in Dividends
xx
Investment Income (P/L)*
xx Share in Investee’s OCL (OCL)
xx
Share in Investee’s OCI (OCI)
xx Impairment Loss (P/L)
xx
End. Balance
xx
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NOTE: Investment income (share in profit or loss) is recognized only to the extent of unrelated investor’s
interests in the joint venture. Thus if a transaction is:
(a) Downstream (from venturer to joint venture) – eliminate entire unrealized profit
(b) Upstream (from joint venture to venture) – eliminate investor’s share in unrealized profit.
IFRS for SMEs provide three (3) methods of accounting for its interest in the joint venture: (a) the cost
model, (b) the fair value model, and (c) the equity model.
Transactions
Original
Investment
SUMMARY OF ACCOUNTING TREATMENTS (PFRS for SMEs)
Equity Model
Cost Model
Fair Value Model
Inv. In JV
xx
Inv. In JV xx
Inv. In JV
xx
Cash
xx
Cash
xx
Cash
Transaction Costs
Cash Dividends
Inv. In JV
Cash
xx
Cash
P/L
xx
P/L
xx
xx
Year-end FV
Adjustment
xx
Cash
Cash
P/L
xx
Inv. In JV
P/L
xx
xx
xx
Inv. In JV
Cash
xx
xx
Cash
Inv. In JV
Inv. In JV
P/L
xx
P/L
P/L
xx
xx
Inv. In JV
xx
xx
xx
Share in Net
income
Share of
Impairment Loss
xx
xx
Inv. In JV
xx
xx
PRESENTATION AND DISCLOSURE
Investments accounted for under the equity method are presented as non-current assets in the statement
of financial position.
However, when such investments are classified as held for sale in accordance with PFRS 5, they are
presented as current assets.
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DISCUSSION EXERCISES
STRAIGHT PROBLEMS:
INVESTMENT IN JOINT VENTURES (FULL PFRS)
1.
On January 1, 2019, RAIGOR CORP. and EARTHSHAKER INC. incorporated STONEHOOF COMPANY
which has its fiscal and operational autonomy. The contractual agreement of the incorporating entities
provided that the decisions on relevant activities of STONEHOOF will require the unanimous consent
of both entities. Both RAIGOR and EARTHSHAKER will have rights to the net assets of STONEHOOF.
Both entities invested P500,000 each equivalent to 40:60 capital interest of STONEHOOF COMPANY.
The financial statements of the joint venture for its 3-year operation are as follows:
Year
2019
2020
2021
Net income (loss)
P 700,000
(P 2,000,000)
1,500,000
Dividends declared
P 200,000
-
REQUIREMENTS: Determine (a) the investment income for the years 2019-2021; (b) the balance of
investment in joint venture for the years ended December 31, 2019-2021 for both RAIGOR and
EARTHSHAKER?
SOLUTION:
RAIGOR
INVESTMENT INCOME (LOSS)
INVESTMENT BALANCE
2019 (700,000 x 40%)
280,000
[280,000 – (200,000 x 40%)] + 500,000
700,000
2020 (2M x 40%) vs. 700,000
(700,000)
(700,000 – 700,000)
2021 (1.5M x 40%) – 100,000
500,000
500,000
NOTE: For 2020, there is unrecognized loss amounting to P100,000. Before the entity recognize any investment
income, recognize the loss first.
EARTHSHAKER
INVESTMENT INCOME (LOSS)
INVESTMENT BALANCE
2019 (700,000 x 60%)
420,000
[420,000 – (200,000 x 60%)] + 500,000
800,000
2020 (2M x 60%) vs. 800,000
(800,000)
(800,000 – 800,000)
2021 (1.5M x 60%) – 400,000
500,000
500,000
NOTE: For 2020, there is unrecognized loss amounting to P400,000. Before the entity recognize any investment
income, recognize the loss first.
2.
On January 1, 2019, MOGUL CORP. and AXE INC. incorporated DOTA INC. by investing P1,000,000
and P2,000,000, respectively for a capital ratio of 60:40. The contractual agreement of the
incorporating entities provided that the decisions on relevant activities of DOTA will require the
unanimous consent of both entities. Both MOGUL and AXE will have rights to the net assets of DOTA.
During 2019, DOTA’s financial statements provided the following data:

DOTA reported a net income of P1,000,000 for 2019 and paid cash dividends of P400,000 on
December 31, 2019.

During 2019, MOGUL sold inventory to DOTA for P100,000 with a 40% gross profit on the
transaction. 80% of the goods sold were sold by DOTA to third parties during the year.

During 2019, DOTA sold inventory to AXE for P200,000 with a 30% gross profit on the
transaction. 60% of the goods were sold by AXE to third parties during the year.

On July 1, 2019, DOTA sold MOGUL a machinery at a loss of P50,000. At the time of sale, the
machinery has remaining useful life of 2 years.

On October 1, 2019, AXE sold DOTA an equipment at a gain of P90,000. At the time of sale, the
machinery has a remaining life of 3 years.
REQUIREMENTS: (a) What is the investment income to be reported by MOGUL and AXE for the year
ended 2019? (b) What is the balance of investment in DOTA INC. be reported by MOGUL and AXE on
December 31, 2019?
Share in net income (1M x 60%)
Downstream sale of inventories:
(P40,000 x 20%)
Upstream sale of inventories:
Upstream sale of depreciable asset:
(50,000 x (1.5/2) x 60%)
Downstream sale of depreciable asset:
Investment Income
Dividends received (400,000 x 60%)
Beginning balance
Investment balance
MOGUL
P600,000
(1M x 40%)
(8,000)
-
(P60,000 x 40% x 40%)
(9,600)
22,500
_______
P614,500
(240,000)
1,000,000
P1,374,500
(90,000 x (2.75/3)
(400,000 x 40%)
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AXE
P400,000
(82,500)
P307,900
(160,000)
2,000,000
P2,147,900
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INVESTMENT IN JOINT VENTURES (PFRS for SMEs)
3.
On January 1, 2019, YURNERO INC., a small and medium enterprise (SME), invested P300,000 cash
in a joint venture for 30% interest. Transaction costs of 10% of the purchase price were incurred by
YURNERO.
On December 31, 2019, the joint venture reported net income of P500,000 and declared and paid
cash dividends of P100,000. Also on that date, the fair value of the investment in joint venture is
P400,000 and the estimated cost to sell is 10% of the fair value. The value in use of the investment is
estimated at P380,000.
REQUIREMEENTS: (a) What is the carrying amount of Investment in Joint Venture account to be
reported by YURNERO as of December 31, 2019? (b) What is the net amount presented in profit or
loss during 2019? Under the following models:
(1) Equity Model
(3) Fair Value Model
(2) Cost Model
SOLUTION:
EQUITY MODEL
Beginning balance
P330,000
Ending balance
450,000
[(500,000 – 100,000) x 30%) + 330,000]
Recoverable amount
380,000
Impairment loss
70,000
Adjusted ending balance
380,000
Transaction costs
Share in P/L (500K x 30%)
Dividend income
Change in FV
Impairment loss
Net amount in P/L
150,000
(70,000)
80,000
(100K x 30%)
COST MODEL
P330,000
330,000
FV MODEL
P300,000
400,000
380,000
330,000
N/A
400,000
30,000
_______30,000
(30,000)
(100K x 30%)
30,000
100,000
_______100,000
INVESTMENT IN JOINT OPERATIONS
4.
LICH CORP. and FURION INC. incorporated DOTA INC. 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 of DOTA INC. will require the unanimous consent of both entities.
LICH and FURION have rights to the assets and obligations for the liabilities, relating to the
arrangement. The ordinary shares of DOTA will be owned by LICH and FURION in the ratio of 60:40.
At the end of first operation of DOTA, the financial statements provided the following data:
Inventory
P1,000,000
Accounts payable
P2,000,000
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 LICH and FURION also provided for the following concerning the assets
and liabilities of DOTA INC:

LICH owns the land and incurs the loan payable of DOTA INC.

FURION owns the building and incurs the note payable of DOTA INC.

The other assets and liabilities are owned or owed by LICH and FURION on the basis of their
capital interest in DOTA INC.

The sales revenue of DOTA includes sales to LICH and FURION in the amount of P1,000,000 and
P2,000,000, respectively. As of the end of the first year, LICH and FURION were able to resell
30% and 60% of the inventory coming from DOTA to third persons.
REQUIREMENTS: What is the amount of total assets, total liabilities and sales revenue to be reported
by both LICH and FURION, respectively?
SOLUTION:
Assets:
[3M + (1M x 60%)]
Liabilities:
[4M + (2M x 60%)]
Sales revenue:
(5M – 700K – 800K) x 60%
5.
LICH
FURION
3,600,000
[5M + (1M x 40%)]
5,400,000
5,200,000
[1M + (2M x 40%)]
1,800,000
2,100,000
(5M – 700K – 800K) x 40% 1,400,000
ABADDON INC., BALANAR CORP. and CLINKZ CO. agreed to form a joint operation. Profit or loss of
the joint operation shall be divided equally. The following were the transactions during the year:

Inventory costing P100 was sent by ABADDON to CLINKZ.

Freight paid by ABADDON on the inventories sent to BALANAR amounted to P5.
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

Cash of P200 was sent by CLINKZ to BALANAR to be used to purchase additional inventory.
BALANAR purchased additional inventory amounting to P250, P50 of which were made on
account of BALANAR.

Cash sales made by BALANAR amounted to P800.

Operating expenses amounting to P55 were paid by BALANAR using his own cash.

Unsold inventories at year-end amounted to P30 and CLINKZ is charged the unsold inventory at
cost.
REQUIREMENTS: (a) Journalize the transactions above assuming there is a separate books
maintained and no separate books maintained; (b) Compute for the joint operation net income (loss)
and the final cash settlement for each joint operator.
SOLUTION:
A
B
C
D
E
F
H.
1
BOOKS OF A
Joint Operation
100
Inventory
Joint Operation
5
Cash
Joint Operation
200
Payable to C
Joint Operation
50
Payable to B
Rec. from B
Joint Operation
Joint Operation
Payable to B
Payable to C
H.
2
Joint Operation
Joint Operation
Payable to B
Payable to C
H.
3
Sh. In JO Profit
Payable to B
Payable to C
Cash
100
5
200
50
800
800
55
55
30
Payable to C
30
420
140
140
140
245
310
245
Rec. from B
NO SEPARATE BOOKS
BOOKS OF B
Joint Operation
100
Payable to A
Joint Operation
5
Payable to A
Joint Operation
200
Payable to C
Joint Operation
250
JO - Cash
AP
JO - Cash
800
Joint Operation
Joint Operation
55
Cash in bank
800
Joint Operation
Joint Operation
Payable to A
Payable to C
Sh. In JO Profit
Payable to A
Payable to C
Cash
Purchases
Expenses
B
C
D
E
F
H.
1
200
50
800
55
Rec. from B
Joint Operation
Joint Operation
Payable to B
30
420
140
140
140
245
310
245
100
5
140
140
140
245
245
310
800
30
420
Interest in JO
Cash
200
200
50
NO ENTRY
50
NO ENTRY
55
NO ENTRY
55
140
140
Interest in JO
Sh. In JO Profit
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140
140
-
NO ENTRY
Interest in JO
Sh. In JO Profit
30
420
800
NO ENTRY
Interest in JO
Cash in bank
55
Rec. from B
NO ENTRY
NO ENTRY
800
Sh. In JO Profit
Payable to A
Payable to B
Cash
NO ENTRY
AP
NO ENTRY
50
BOOKS OF C
NO ENTRY
NO ENTRY
200
30
NO ENTRY
Interest in JO
5
55
Joint Operation
Joint Operation
Payable to A
Payable to B
800
100
800
Inventory
WITH SEPARATE BOOKS
BOOKS OF B
NO ENTRY
Interest in JO
Sh. In JO Profit
200
Joint Operation
10
0 Merchandise Withdrawals
Purchase returns, discounts and
5 allowances
25
0 Sales and other income items
55 Unsold merchandise
Net income
Freight-in
A
5
30
JO - Cash
Merchandise Contributions
BOOKS OF A
Interest in JO
100
Inventory
Interest in JO
5
Cash
100
BOOKS OF C
Joint Operation
100
Payable to A
Joint Operation
5
Payable to A
Joint Operation
200
Cash
Joint Operation
50
Payable to B
140
140
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H.
2
H.
3
BATCH 2020
NO ENTRY
Cash
Interest in JO
NO ENTRY
245
24
5
Cash
Interest in JO
245
245
Inventory
Interest in JO
30
Cash
Interest in JO
310
30
310
SEPARATE BOOKS
A
B
C
10
0
Inventory
A, Capital
Freight-in
A, Capital
10
0
5
5
20
0
Cash
20
0
C, Capital
D
25
0
Purchases
20
0
50
Cash
B, Capital
E
F
80
0
Cash
Sales
Expenses
B, Capital
Inventory, end
Sales
G
80
0
55
55
30
80
0
10
0
5
25
0
55
42
0
Inventory, beg.
Freight-in
Purchases
Expenses
Income summary
Income summary
H.
1
42
0
14
0
14
0
14
0
A, Capital
B, Capital
H.
2
6.
C, Capital
C, Capital
Inventory, end
30
30
AKASHA INC., BANE CORP. and CHEN CO. The joint operators shall make initial contributions P10,000
each. Profit and loss shall be divided equally. The following data relate to the joint operation’s
transactions:
AKASHA
BANE
CHEN
Joint Operation
P8,000 cr.
P10,000 cr.
P12,000 cr.
Expenses paid from JO cash
5,000
2,000
3,000
Value of inventory taken
5,000
6,000
4,000
REQUIREMENTS: (a) Compute for the joint operation’s sales; (b) Determine the cash settlement to
AKASHA.
Initial Contributions
Expenses
Initial Contributions
Joint Operation
30,00
0 Sales and other income items
10,00
0
Credit balance
Joint Operation
30,000 Sales and other income items
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70,00
0
30,000
70,000
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Expenses
BATCH 2020
10,000
Unsold merchandise
15,000
Net income
45,000
Contributions
Share in profit
Inventory taken
Cash settlement – receipt
10,000
15,000
(5,000)
20,000
MULTIPLE CHOICE: (THEORIES)
1.
It is 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
C.
Joint operation
B.
Jointly controlled asset
D.
Joint business
2.
The
I.
II.
A.
B.
essential elements of a joint arrangement include:
Contractual agreement
III. Establishment of a separate vehicle
Joint control
I only
C.
I and II
II only
D.
I, II and III
3.
Which of the following is not one of the characteristics of a joint control?
A.
It is obtained by an investor through contractual agreement with fellow investors.
B.
Financial and operating decisions relating to the investee’s activities require each of the
investor’s consent.
C.
No sole investor obtains leverage over another investor in respect of voting rights over the
financial and operating decisions.
D.
One of the investors has the power to govern the financial and operating policies of the investee
so as to obtain benefits from it.
4.
Under PFRS 11, how shall the joint venture account for its Investment in Joint Venture?
A.
Equity method
C.
Fair value method under PFRS 9
B.
Cost method
D.
Proportionate consolidation
5.
HUSKAR CORP., an SME, invested in a joint venture during the year. From the following statements,
determine the correct statement?
I.
The invested can be accounted for either by using cost method, fair value method or equity
method.
II.
HUSKAR should account its dividend received from the joint venture as a deduction from
investment account if the entity opted to choose fair value method.
A.
I only
C.
Both I and II
B.
II only
D.
Neither I nor II
QUIZZER (DO-IT-YOURSELF DRILL)
THEORIES
1.
The existence of contractual agreement for sharing of joint control over an investee
A.
is necessary before an asset is classified as an investment.
B.
is not necessary before an asset is classified as an investment.
C.
distinguishes interests in joint ventures from interests in joint operation.
D.
distinguishes interests in joint arrangements from other investments.
2.
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.
D.
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.
3.
Which is not characteristic of a joint operation?
A.
Each joint operator uses its own property, plant and equipment and carries its own inventory.
B.
Each joint operator shall recognize in its financial statements the assets it controls and the
liabilities it incurs.
C.
Each joint operator incurs its own expenses and liabilities and raises its own finance which
represents its own obligations.
D.
Each joint operator shall not recognize in its financial statements the expenses it incurs and its
share of income from the joint operation.
4.
Joint control is defined as
A.
The power to participate in the financial and operating policy decisions of another entity.
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B.
C.
D.
BATCH 2020
The power to govern the financial and operating policies of another entity so as to obtain
benefits from its activities.
The contractually agreed sharing of control of an arrangement which exists only when decisions
about relevant activities require majority consent of the parties sharing control.
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.
5.
Which of the following is a characteristic of a joint arrangement?
I.
The parties are bound by a contractual arrangement.
II.
The contractual arrangement gives two or more parties joint control over the arrangement.
A.
I only
C.
Both I and II
B.
II only
D.
Neither I nor II
6.
Under PFRS for SMEs, how shall the joint venture account for its Investment in Joint Venture?
A.
Equity method
C.
Fair value through profit or loss under PFRS 9
B.
Cost method
D.
Any of the above
7.
An entity that participates in a joint arrangement is referred to under PFRS 11 as
A.
party to a joint arrangement
B.
joint arranger
C.
choice A only if the party obtains joint control
D.
choice B regardless of whether the party obtains joint control
8.
The main consideration when classifying a joint arrangement into either joint operation or joint
venture is
A.
the existence of a contractual arrangement resulting to a joint control by all or some of the
contracting parties.
B.
the existence or non-existence of a separate vehicle.
C.
the duration of the contractual arrangement - a relatively short-term agreement is classified as
a joint operation.
D.
the nature of the rights and obligations of the parties arising from the arrangement.
9.
A and B agreed to combine their operations, resources and expertise to manufacture, market and
distribute jointly a particular product. Different parts of the manufacturing process are carried out by
each of the parties. Each of the party bears its own costs and takes a share of the revenue from the
sale of the product equally. Which of the following statements is correct?
A.
The joint arrangement is classified as a joint operation because the joint arrangement is not
structured through a separate vehicle.
B.
The joint arrangement is classified as a joint venture because the joint arrangement is not
structured through a separate vehicle.
C.
The joint arrangement is classified as a joint operation because the joint arrangement is
structured through a separate vehicle.
D.
The joint arrangement is classified as a joint venture because the joint arrangement is
structured through a separate vehicle.
10.
It is the joint arrangement that involves the establishment of a corporation in which each party has
an equity interest in the net assets of the corporation.
A.
Joint venture
C.
Either joint venture or joint operation
B.
Joint operation
D.
Neither joint venture nor joint operation
11.
THE APPLE COMPANY, THE BERRY COMPANY and THE CHERRY COMPANY own 30%, 30% and 40%
respectively of the equity of THE DAMSON COMPANY. APPLE and BERRY have signed an agreement
whereby the strategic decisions in respect of DAMSON are to be taken with the agreement of both of
them. Are the following statements true or false, according to FPRS 11, Joint Arrangements?
I.
CHERRY is an investor in DAMSON.
II.
APPLE should account for its share in the profits of DAMSON by reference to the dividends
receivable from DAMSON
A.
False, false
C.
True, false
B.
False, true
D.
True, true
12.
When an investment in joint venture is held by a venture capital organization, mutual trust fund, unit
trust and insurance-linked fund
A.
The entity must apply the equity method of accounting.
B.
The entity must apply the fair value method of accounting.
C.
The entity may elect to measure the investment in joint venture at fair value through profit or
loss.
D.
The entity may elect to measure the investment in joint venture at fair value through other
comprehensive income.
13.
Which of the following is correct?
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A.
B.
C.
D.
BATCH 2020
All joint arrangements are not structured through a separate vehicle are classified as joint
ventures
For a joint venture, the rights pertain to the rights and obligations associated with individual
assets and liabilities, whereas with a joint operation, the rights and obligations pertain to the
net assets
In considering the legal form of the separate vehicle if the legal form establishes rights to
individual assets and obligations, the arrangement is a joint operation. If the legal form
establishes rights to the net assets of the arrangement, then the arrangement is a joint venture.
Where the joint operators have designed the joint arrangement so that its activities primarily
aim to provide the parties with an output it will be classified as a joint-control?
14.
A joint arrangement classified as joint venture may be accounted for using the following methods:
A)
Equity method
C)
Fair value method
B)
Cost method
FULL IFRS
SME
A.
A, B & C
A, B & C
B.
A only
A, B & C
C.
A, B & C
A only
D.
A&C
B&C
15.
Under PFRS 11, which is incorrect about the accounting treatment by non-SME Venturer of its
Investment in Joint Venture?
A.
The venturer shall recognize impairment loss on Investment in Joint Venture if the book value of
the investment is lower than its recoverable amount which is the higher between value in use or
fair value less cost to sell.
B.
The venturer shall recognize cash or property dividend from joint venture as dividend income
when its right to receive dividend is established.
C.
The venturer shall recognize its share in the net invoke of the joint venture as investment
income with corresponding increase to investment in joint venture.
D.
The-venturer shall recognize its share in the net loss of the joint venture as investment loss with
corresponding decrease to investment m joint venture,
PROBLEMS
Use the following information in answering the next item(s):
On January 1, 2018, SVEN CORP., a public entity and TINY INC., a public entity, incorporated
KUNKKA CO. which has its fiscal and operational autonomy. The contractual agreement of the
incorporating entities provided that the decisions on relevant activities of KUNKKA will require the
unanimous consent of both entities. SVEN and TINY will have rights to the net assets of KUNKKA.
SVEN and TINY invested P1,000,000 and P1,500,000, respectively, equivalent to 40:60 capital
interest of KUNKKA. The financial statements of KUNKKA provided the following data for its two-year
operation:
NET INCOME (LOSS)
DIVIDENDS DECLARED
2018
200,000
100,000
2019
(2,000,000)
1.
What is the balance of Investment in KUNKKA CO. to be reported by SVEN in its Statement of
Financial Position on December 31, 2019?
A.
P1,080,000
C.
P240,000
B.
P1,040,000
D.
P200,000
2.
What is the balance of Investment in KUNKKA CO. to be reported by TINY in its Statement of
Financial Position on December 31, 2019?
A.
P1,500,000
C.
P360,000
B.
P1,620,000
D.
P900,000
3.
On January 1, 2018, BEASTMASTER CORP. a public entity, invested P 1,000,000 in a joint venture for
50% capital interest. The following transactions occurred:

On July 1, 2018, the joint venture sold equipment to BEASTMASTER CORP. at a gain of P60,000.
The equipment has remaining useful life of 5 years at the time of sale.

On December 1, 2018, the joint venture sold inventory to BEASTMASTER CORP. at a gross profit
of P100,000. BEASTMASTER was able to sell 60% of the said inventory to third person during
2018. Afterwards, BEASTMASTER was able to sell 30% of the said inventory to third person
during 2019 and the remainder during 2020.
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
On October 1, 2019, the joint venture sold a land to BEASTMASTER at a loss of P50,000. On
April 1, 2020, BEASTMASTER was able to sell the land to third person.
The financial statements of Entity C provided the following data for its three year operation:
Net Income (Net Loss)
Dividend Declaration
2018
P 500,000
P 100,000
2019
(P 2,500,000)
2020
P 3,000,000
P 200,000
What is the investment income to be reported by BEASTMASTER in relation to its Investment in Joint
Venture in its Statement of Comprehensive Income for the year ended December 31, 2020?
A.
1,536,000
C.
1,486,000
B.
1,435,000
D.
1,492,000
Use the following information in answering the next item(s):

On January 1, 2015, SME DAVION CORP. acquired a 35% equity of HUSKAR CORP. for P37,000.
SME DAVION shares in the joint control over the strategic financial and operating decisions of
HUSKAR CORP. Transactions costs of 5% of the purchase price of the shares were incurred by
SME DAVION.

On December 31, 2015, HUSKAR declared and paid a dividend of P24,000 for the year ended
2015. HUSKAR recognized a profit of P18,000 for that year.

Published price quotations do not exist for the shares of HUSKAR. Using appropriate valuation
techniques SME DAVION determined the fair value of its investment in HUSKAR at December
31, 2015 as P49,000. Costs to sell are estimated at 9% of the fair value of the investments.
SME DAVION does not prepare consolidated financial statements because it does not have any
subsidiary.
4.
What is the profit (loss) of SME DAVION to be presented in the income statement for HUSKAR CORP.
using the fair value method?
A.
P20,400
C.
P15,990
B.
P18,550
D.
P14,140
5.
What is the profit (loss) of SME DAVION to be presented in the income statement for HUSKAR CORP.
using the cost model?
A.
P(8,575)
C.
P 5,250
B.
P 8,400
D.
P(1,750)
6.
What is the investment balance of SME DAVION at the end of the year in HUSKAR CORP. using the
fair value method?
A.
P52,325
C.
P49,000
B.
P57,575
D.
P47,075
7.
What is the investment balance of SME DAVION at the end of the year in HUSKAR CORP. using the
equity method?
A.
P38,850
C.
P34,125
B.
P42,525
D.
P36,750
Use the following information in answering the next item(s):
JJ, DD and AA formed a joint operation for the sale of assorted fruits during the Christmas season.
Their transactions during the two-month period are summarized below.
Investment in Joint Operation
Nov. 6 Merchandise - JJ
P8,500 Nov.10 Cash sales-AA
P20,400
8 Merchandise - DD
7,000
12 Cash sales - AA
4,200
10 Freight-in - AA
200
28 Merchandise - DD
1,210
Dec. 8 Purchases - AA
3,500 Dec.30 Unsold merchandise
14 Selling expenses - AA
550
charged to JJ
540
The joint arrangements provided for the division of gains and losses among JJ, DD and AA in the ratio
of 2:3:5. The joint operation is to close on December 31, 2013.
8.
The joint operation profit (loss) is:
A.
P6,600
C.
P6,060
B.
(6,600)
D.
(6,060)
9.
How much would JJ receive cash in final settlement?
A.
P9,712
C.
P1,212
B.
P8,500
D.
P9,280
Use the following information in answering the next item(s):
CENTAUR and TUSK formed a joint arrangement. Their capital contributions and profit and loss ratio
are presented below:
Contributions
Profit and
Cash
Merchandise
Loss Ratio
CENTAUR
P5,000
P8,000
50%
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TUSK
6,000
A summary of the joint operations activities is presented below:
Purchases of merchandise by TUSK
Expenses paid by TUSK:
Mayor's permit
Freight on merchandise contributed by CENTAUR
Delivery expense of merchandise sold
Sales (all of the merchandise contributed and purchased by TUSK and
one-half of those contributed by CENTAUR) - Selling price
50%
P4,000
400
300
200
14,000
10.
The balance of the joint operations account before profit or loss distribution is:
A.
P4,900
C.
14,400
B.
14,000
D.
None
11.
The profit (loss) of the joint operations is:
A.
P(450)
B.
P 750
12.
How much would Anson receive in the final settlement assuming he took the unsold merchandise at
cost?
A.
P13,000
C.
P8,475
B.
P12,625
D.
P8,515
C.
D.
P(750)
P 450
Use the following information in answering the next item(s):
ANTI-MAGE and MORPHLING are joint operators in a joint arrangements for the acquisition of
construction supplies at an auction. The two joint operators agreed to contribute cash of P20,000
each to be used in purchasing the supplies, and to share profits and losses equally, they also agreed
that each shall record his purchases, sales and expenses in his own books.
Several months later, the two joint operators terminated the arrangement. The following data relate
to the venture activities:
ANTI-MAGE
MORPHLING
Joint operation
P16,000 Cr.
P18,400 Cr.
Value of inventory taken
600
2,200
Expenses paid from JV cash
800
1,800
13. The amount of joint operations sales is:
A.
P77,000
C.
P34,400
B.
P27,000
D.
None
14.
ANTI-MAGE would receive in the final settlement:
A.
P 2,000
C.
B.
P18,600
D.
P 4,000
P38,000
Use the following information in answering the next item(s):
On January 1, 2015, PHANTOM LANCER INC., RIKI CORP and NAGA SIREN CORP. establish a joint
undertaking to manufacture a product they agree to share equally. Each will contribute P200,000 into
the operation; PHANTOM LANCER and RIKI are to contribute cash while NAGA SIREN is to contribute
equipment with a cost of P185,000. The equipment has a remaining life of 10 years when contributed.
15.
16.
17.
Determine the amount of NAGA SIREN will show the Equipment in JO account in its balance sheet at
January 1, 2015.
A.
P61,667
C.
P66,667
B.
P50,000
D.
P65,000
Determine the amount of NAGA SIREN will show the Equipment in JO account in its balance sheet at
December 31, 2015.
A.
P45,000
C.
P60,000
B.
P55,000
D.
P58,800
Determine the net amount PHANTOM LANCER or RIKI CORP. will show the Equipment in JO account in
its balance sheet at December 31, 2015.
A.
P45,000
C.
P60,000
B.
P55,500
D.
P58,500
Use the following information in answering the next item(s):
On January 1, 2020, SILENCER 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:
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Year
2020
2021
2022
BATCH 2020
Net Income (Loss)
P1,000,000
(P6,000,000)
P7,000,000
Dividend Distribution
P300,000
P500,000
18.
What is the book value of Investment in Joint Venture to be reported by SILENCER INC. as of
December 31, 2020?
A.
P1,600,000
C.
P2,5000,000
B.
P2,350,000
D.
P1,450,000
19.
What is the share in net or investment loss to be reported by SILENCER for the year ended December
31, 2021?
A.
P3,000,000
C.
P2,350,000
B.
P2,500,000
D.
P2,000,000
20.
What is the book value of Investment in Joint Venture to be reported by SILENCER INC. as of
December 31, 2022?
A.
P1,600,000
C.
P1,250,000
B.
P2,600,000
D.
P1,450,000
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