Question 1

Which of the following statements is incorrect?
A) Joint arrangements can be classified into joint operations and joint ventures.
B) A joint arrangement has two main characteristics.
C) Joint arrangements are always structured as companies.
D) The key feature of a joint arrangement is that the parties involved have joint control over the decision making in relation to the joint arrangement.

Accepted Answer

Joint arrangements can take many different legal structures, including partnerships, contractual arrangements, and joint ventures. They do not have to be structured as companies.

Question 2

Each joint operator must recognise in its own accounts:
A) its expenses incurred in construction of a joint product.
B) its share of any jointly held liabilities.
C) its share of any expenses incurred by the joint operation.
D) all of the above.

Accepted Answer

Each joint operator must recognise all of the above in its own accounts as stated in the question. This includes expenses incurred in construction of a joint product, share of any jointly held liabilities, and share of any expenses incurred by the joint operation.

Question 3

Crazy Limited and Frog Limited formed a joint operation and share in the output of the joint operation 60:40. The joint operation paid a management fee of $40 000 to Crazy Limited during the current period. The cost to Crazy Limited of supplying the management service was $28 000. The amount of profit that Crazy Limited will recognise in relation to the provision of the management fee to the joint operation is:
A) nil.
B) $4800.
C) $7200.
D) $12 000.

Accepted Answer

The profit recognised by Crazy Limited is the management fee received less the cost of providing the service: $40,000 - $28,000 = $12,000. However, since Crazy Limited only has a 60% share in the joint operation, it will only recognise 60% of this profit, which is $12,000 x 60% = $7,200.

Question 4

Cash contributed to a joint operation was used to purchase Equipment ($250 000) and raw materials ($100 000). The entry by the joint operation to record of these transactions is which of the following?
A) DR Equipment $250 000 DR Raw materials $ 100 000
CR Cash $350 000
B) DR Work in progress $350 000 CR Joint operation capital $350 000
C) DR Cash $350 000 CR Contribution to joint operation $350 000
D) DR Cash $350 000 CR Equipment $250 000
CR Raw materials $100 000

Accepted Answer

The correct entry to record the purchase of equipment and raw materials using cash in a joint operation is to debit the specific asset accounts (Equipment and Raw Materials) for their respective amounts and credit Cash for the total amount spent, which is $350,000. This reflects the decrease in cash and the increase in assets owned by the joint operation.

Question 5

According to AASB 11/IFRS 11 Joint Arrangements, joint control exists where:
A) no single party is in a position to control the activity unilaterally.
B) the decisions in areas essential to the goals of the joint arrangement do not require the consent of the parties.
C) no one party may be appointed as the manager of the joint arrangement.
D) one party alone has power to control the strategic operating decisions of the joint arrangement.

Accepted Answer

According to AASB 11/IFRS 11, joint control exists when no single party is in a position to control the activity unilaterally. Therefore, choice A is the correct answer. Choices B, C, and D are incorrect because they do not accurately describe the concept of joint control as defined in the standard.

Question 6

Which of the following statements is incorrect?
A) A joint operator contributing assets other than cash cannot transfer the asset at fair value to the joint operation and recognise a full profit on the transaction.
B) Where an operator contributes a non-current asset to a joint operation, the value of the contribution is the asset's historical cost.
C) If a joint operator supplies management services to the joint operation, it cannot earn a profit on supplying services to itself.
D) Where an operator contributes a non-current asset to a joint operation, the value of the contribution is effectively the non-current asset's fair value.

Accepted Answer

The value of the contribution of a non-current asset to a joint operation is typically recognized at fair value, not historical cost.

Question 7

A joint operation holds equipment with a carrying amount of $1 200 000. The two joint operators participating in this arrangement share control equally. They also depreciate equipment using the straight-line method. The equipment has a useful life of 5 years. At reporting date, each joint operator must recognise which of the following entries in its records in relation to depreciation?
A) DR Depreciation expense $240 000
B) DR Depreciation expense $120 000
C) DR Investment in joint operation $240 000
D) DR Assets in joint operation $120 000

Accepted Answer

Each joint operator will only recognize depreciation expense in their own records for their 50% share of the equipment. Therefore, the total amount of depreciation expense to be recognized is $1,200,000 / 5 years = $240,000 per year. Each joint operator will recognize depreciation expense of $240,000 x 50% = $120,000 in their own records. Therefore, the correct entry is DR Depreciation expense $120,000.

Question 8

If the joint arrangement is not structured through a separate vehicle, the arrangement is classified as a:
A) joint venture.
B) joint vehicle.
C) joint operation.
D) joint structure.

Accepted Answer

If the joint arrangement is not through a separate vehicle, it is classified as a joint operation. A joint operation is a joint arrangement where the parties involved have joint control over the economic activity.

Question 9

Ying Limited and Yang Limited agreed to form a joint operation to offer health services. To start the operation the joint operators agreed to contribute cash of $500 000 each. The joint operation will record which of the following entries to recognise this event?
A) DR Joint operator contributions $1 000 000 CR Cash $1 000 000
B) DR Cash $1 000 000 CR Joint operator revenue $1 000 000
C) DR Venturer's equity - Ying Limited $500 000 DR Venturer's equity - Yang Limited $500 000
CR Cash $1 000 000
D) DR Cash $1 000 000 CR Joint operation contribution - Ying $500 000
CR Joint operation contribution - Yang $500 000

Accepted Answer

The correct entry reflects the cash inflow (debit to Cash) and records the contributions from each joint operator (credits to their respective contribution accounts), accurately representing the transaction from the perspective of the joint operation.

Question 10

Accounting for a joint venture is done by application of the:
A) equity method.
B) fair value method.
C) consolidation method.
D) present value method.

Accepted Answer

The equity method is generally used for accounting for joint ventures, where two or more parties contribute resources to a new entity. Under this method, the investor records its share of the joint venture's income, expenses, and assets in its financial statements. This method is preferred when the investor has significant influence but not control over the joint venture. The fair value method may be used if the joint venture meets certain criteria, such as being an investment in a marketable security. The consolidation method is used when one entity has control over another, and the present value method is used for discounting future cash flows.

Question 11

Which of the following statements is incorrect?
A) Accounting records do not need to be prepared for the joint operation itself.
B) Accounting for a joint venture is the same as that of a joint operation.
C) AASB 11/IFRS 11 Joint Arrangements do not provide standards on accounting for the joint operation itself.
D) The statement of financial position is the joint operation's main financial statement.

Accepted Answer

Accounting for a joint venture and a joint operation are two different things. A joint venture is a separate entity created by the parties involved, while a joint operation involves the parties jointly controlling assets and liabilities. Therefore, the accounting treatments for these two arrangements are not the same.

Question 12

Which of the following statements is not correct in relation to joint control?
A) Joint control can exist without the existence of a contractual arrangement.
B) Joint control exists only where there is contractually agreed sharing of control.
C) Entities over which a party has joint control are accounted for in accordance with AASB 11/IFRS 11 Joint Arrangements.
D) Joint control requires the unanimous consent of the parties sharing control.

Accepted Answer

Joint control typically requires a contractual arrangement that establishes the agreed sharing of control among the parties involved. This means that joint control without a contractual arrangement is not in line with the standard definitions and requirements of joint control as outlined in accounting standards like AASB 11/IFRS 11.

Question 13

Pelican Limited and Waters Limited formed a joint operation and share equally in the output of the joint operation. The joint operation paid a management fee of $60 000 to Pelican Limited during the current period. The cost to Pelican Limited of supplying the management service was $42 000. Pelican Limited records the costs of supplying the management services as which of the following entries?
A) DR Cost of supplying services $42 000 CR Cash $42 000
B) DR Cost of supplying services $18 000 CR Cash $18 000
C) DR Cash $ 42 000 CR Costs of supplying services $ 42 000
D) DR Fee revenue $ 60 000 CR Cash $ 60 000

Accepted Answer

Pelican Limited incurs a cost of $42,000 for supplying the management service, which should be recorded as an expense (debit) and a reduction in cash (credit) for the same amount.

Question 14

Three joint operators are involved in a joint operation that manufactures mining equipment. At the beginning of the year the joint operation held $100 000 in cash. During the year, the joint operation paid wages of $40 000. Additionally, creditors amounting to $80 000 were paid and the joint operators contributed $30 000 cash each to the joint operation. The balance of cash held by the joint operation at the end of the year is:
A) $10 000.
B) $50 000.
C) $70 000.
D) $150 000.

Accepted Answer

The cash flow for the joint operation can be summarised as follows:

Beginning cash balance: $100 000

Cash received from joint operators: $30 000 x 3 = $90 000

Total cash available: $190 000

Cash paid out for wages and creditors: $40 000 + $80 000 = $120 000

Ending cash balance: $190 000 - $120 000 = $70 000

Therefore, the balance of cash held by the joint operation at the end of the year is $70 000.

Question 15

A 50:50 joint operation was commenced between Suncorp Ltd and Stadium Ltd. Suncorp Ltd contributed cash of $200 000, and Stadium Ltd contributed a building with a fair value of $200 000. Using the line-by-line method of accounting, Suncorp Ltd would record which of the following entries?
A) DR Building in JO $200 000 CR Cash $200 000
B) DR Cash in JO $200 000 CR Cash $200 000
C) DR Investment in joint operation $200 000 CR Cash $200 000
D) DR Cash in JO $100 000 DR Building in JO $100 000
CR Cash $200 000

Accepted Answer

Under the line-by-line method of accounting for joint ventures, each joint venturer records its own contribution to the joint operation. In this case, Suncorp Ltd contributed cash and Stadium Ltd contributed a building. Therefore, Suncorp Ltd should record its contribution to the joint operation by debiting Cash in JO for $100,000 (which represents its 50% share of the cash contributed by both parties) and debiting Building in JO for $100,000 (which represents Suncorp's 50% share of the fair value of the building contributed by Stadium). The corresponding credit entry is to Cash for $200,000 (representing the total amount contributed to the joint operation by both parties).

Question 16

Three joint operators agree to an arrangement in which they have an equal share in a manufacturing joint operation. The work undertaken in setting up the joint operation cost $600 000 and each operator contributed in cash. Each operator will need to recognise which of the following accounting entries?
A) DR Work in progress in JO $600 000 CR Cash $600 000
B) DR Inventories in JO $200 000 CR Cash $200 000
C) DR Cash in JO $600 000 CR Cash $600 000
D) DR Cash in JO $200 000 CR Cash $200 000

Accepted Answer

The answer of Three joint operators agree to an arrangement...

Question 17

The particular relationship between parties that signifies the existence of a joint arrangement is:
A) dominating influence by one party over the other party.
B) control over the operating policies of one party by another party.
C) shared influence by two parties over the activities of another party.
D) joint control by the parties over the activities of an arrangement.

Accepted Answer

The particular relationship between parties that signifies the existence of a joint arrangement is joint control by the parties over the activities of an arrangement. This means that both parties have equal decision-making power and can influence the direction and operation of the joint arrangement. Options A and B describe a situation where one party has more control or influence than the other, which would not signify a joint arrangement. Option C describes shared influence by two parties, but it does not necessarily imply joint control over the activities of an arrangement.

Question 18

In relation to the supply of a service to a joint operation by one of the joint operators, which of the following statements is correct?
A) A joint operator can recognise 100% of the earned revenue through the supply of services to the joint operation.
B) A joint operator is entitled to recognise a profit from the supply of services to itself.
C) A joint operator cannot earn a profit on supplying services to itself.
D) It is uncommon for a joint operator to act in a management position for the joint operation.

Accepted Answer

A joint operator cannot earn a profit on supplying services to itself because in accounting terms, transactions with oneself cannot generate profit. This is because the entity is essentially paying itself, so any "profit" would not reflect a true economic gain from an external transaction.

Question 19

Alfie Limited and Benny Limited formed a joint operation and share in the output of the joint operation 60:40. The joint operation paid a management fee of $40 000 to Alfie Limited during the current period. The cost to Alfie Limited of supplying the management service was $28 000. Alfie Limited records the management fee revenue as follows:
A) DR Cash $40 000 CR Fee revenue $40 000
B) DR Cash $28 000 CR Fee revenue $28 000
C) DR Cash $ 24 000 CR Fee revenue $24 000
D) DR Cash $16 000 CR Fee revenue $16 000

Accepted Answer

CAlfie Limited should recognize the full management fee revenue of $40,000 as it is the amount agreed upon for the management services provided to the joint operation (Option A). Additionally, since Alfie Limited has a 60% share in the joint operation, it should also recognize its share of the expense, which is 60% of $40,000, equating to $24,000. This is not directly represented in the options provided, but the understanding of recognizing full revenue and then accounting for the share of expenses separately is crucial in joint operations accounting. Option C is mentioned because it seems to attempt to reflect a portion of the transaction, but it's important to note that the correct accounting treatment involves recognizing the full revenue amount and then dealing with the share of costs or expenses separately, which isn't perfectly captured by the given options.

Question 20

A 50:50 joint operation was commenced between two participants. Ronan Ltd contributed cash of $100 000, and Keating Ltd contributed a Building with a fair value of $100 000
And a carrying amount of $80 000. Using the line-by-line method of accounting, Keating Ltd would record which of the following entries?
A) DR Building in JO $80 000 CR Building $80 000
B) DR Building in JO $100 000 CR Building $80 000
CR Gain on sale of building $20 000
C) DR Investment in joint operation $100 000 CR Building $80 000
CR Gain on sale of building $20 000
D) DR Cash in JO $50 000 DR Building in JO $50 000
CR Building $80 000
CR Gain on sale of building $20 000

Accepted Answer

The answer of A 50:50 joint operation was commenced between...

Quiz 15: Joint Arrangements

Which of the following statements is incorrect?

Each joint operator must recognise in its own accounts:

Cash contributed to a joint operation was used to purchase Equipment ($250 000) and raw materials ($100 000) . The entry by the joint operation to record of these transactions is which of the following?

According to AASB 11/IFRS 11 Joint Arrangements, joint control exists where:

Which of the following statements is incorrect?

If the joint arrangement is not structured through a separate vehicle, the arrangement is classified as a:

Ying Limited and Yang Limited agreed to form a joint operation to offer health services. To start the operation the joint operators agreed to contribute cash of $500 000 each. The joint operation will record which of the following entries to recognise this event?

Accounting for a joint venture is done by application of the:

Which of the following statements is incorrect?

Which of the following statements is not correct in relation to joint control?

A 50:50 joint operation was commenced between Suncorp Ltd and Stadium Ltd. Suncorp Ltd contributed cash of $200 000, and Stadium Ltd contributed a building with a fair value of $200 000. Using the line-by-line method of accounting, Suncorp Ltd would record which of the following entries?

The particular relationship between parties that signifies the existence of a joint arrangement is:

In relation to the supply of a service to a joint operation by one of the joint operators, which of the following statements is correct?