Question 1

According to AASB 11.24,a venturer must recognise its interest in a jointly controlled entity using:
A) proportionate consolidation.
B) The equity method.
C) either proportionate consolidation or the equity method.
D) one-line method.

Accepted Answer

AASB 11.24 requires a venturer to recognize its interest in a jointly controlled entity using the equity method.

Question 2

Accounting Standard AASB 11 Joint Arrangements does not apply to investments in joint ventures:
A) by venture capital organisations.
B) by unit trusts.
C) that are held for sale.
D) all of the above.

Accepted Answer

AASB 11 Joint Arrangements applies to joint operations and joint ventures. However, it does not apply to investments in joint ventures that are held for sale, or to certain types of joint arrangements held by venture capital organisations or by unit trusts. Therefore, all choices listed in the question are correct.

Question 3

Discuss the control test for asset recognition in relation to the line-by-line method of accounting for interests in jointly controlled operations and jointly controlled assets.

Accepted Answer

Truehe control test for asset recognition in the line-by-line method for jointly controlled operations and jointly controlled assets:
- Accounting regulations require that assets constitute future economic benefits controlled by the entity.In a joint venture,there is only partial control as opposed to control of all the future economic benefit.
- The line-by-line method also aggregates fully controlled assets with jointly controlled assets in the venturer's financial statements.The effect is to complexly hide the existence of jointly controlled operations and jointly controlled assets in the venturer's financial statements.

Question 4

Midstream Ltd and Delta Ltd enter into a business undertaking in which they each commit 50-hectare vineyards.There is a contractual agreement between the two companies whereby they share control and must agree on all strategic financial and operating decisions relating to the two vineyards.The two companies appoint Todman Management Pty Ltd as the manager of the vineyard undertaking.A separate set of accounting databases is established for the undertaking and each investor contributes additional cash capital to the undertaking and hold assets other than the vineyards as tenants in common.The intention of the investing companies is to take their proportionate share of the produce from the two vineyards to use in their own wineries.The business undertaking is:
A) a joint venture operation because the investors have agreed to a sharing of control and to a sharing of the outputs of the vineyard.
B) a joint venture entity because the undertaking has been established as a separate entity in which there is a simple sharing of control.
C) a simple partnership in which two companies operate as partners in a business undertaking.
D) none of the above.

Accepted Answer

The business undertaking satisfies the criteria for a joint venture operation as both investors have agreed to share control and the outputs of the vineyard. Additionally, a separate accounting database has been established and each investor has contributed additional cash capital to the undertaking while holding assets as tenants in common. The intention of both investors is to take their proportionate share of the produce for use in their own wineries.

Question 5

Discuss the issue of entitlement of venturers to share in profits of a jointly controlled entity.

Accepted Answer

The answer of Discuss the issue of entitlement of venturers...

Question 6

An investor in a joint operation is required to account for the investment in accordance with AASB 11.

Accepted Answer

According to AASB 11 (Joint Arrangements), an investor in a joint operation is required to account for its investment using the equity method of accounting. Therefore, the statement is true.

Question 7

Jointly controlled operations and jointly controlled assets result from an unincorporated contractual association.

Accepted Answer

Jointly controlled operations and jointly controlled assets are both types of joint arrangements, which are contractual arrangements where two or more parties share control over a specific economic activity or asset without forming a separate legal entity.

Question 8

On 1 July 20X4,Gold Ltd formed a joint venture entity with Maggs Ltd,Research Pty Ltd,to research for ultimate sale in the hamburger market the Giant Genetic Spud (GGS)and the Square Tomato (SR).There was a contractual agreement under which each company shared control of the venture.Each company contributed $500 000 in share capital on that date,and,during the first year of operations,each contributed a further $2 000 000 through loans.For the year ended 30 June 20X5,the following financial statements were produced for the joint venture entity (amounts in thousands): Balance Sheet as at 30 June 20X5
$\begin{array}{lll}
\text {Assets  }&\
\text { Cash}&\$50\
\text {Supplies inventory }&40\
\text {Equipment (net of accumulated depreciation $ \$ 50 $ ) }&450\
\text {Total assets }&\$540\
\text { Less liabilities}&\
\text {Loan payable}&\$4000\
\text {Accounts payable }&50\&4050\\text { Net assets} &-\$3510\
\text {Venturers' equity }&\$1000\
\text {Share capital}&4510\
\text { Accumulated losses}&-3510\
\text {Venturers' equity }&----\
\end{array}$
 Statement of Research and Development Activity for the Year ended 30 June 20X5
$\begin{array}{lll}
\text { Expenditure-Project ST}&\$2100\
\text {Expenditure-Project GGS }&2410\\text { Total expenditure}&\$4510\
\end{array}$
 At 30 June 20X5,Gold Ltd was uncertain as to the outcome of Project GT,but felt reasonably certain that Project GGS would develop into an economically viable patent right in the following year.
At 30 June 20X5,the net investment of Gold Ltd in the joint venture entity calculated using the equity method was:
A) $500 000.
B) $2 500 000.
C) $2 000 000.
D) none of the above.

Accepted Answer

The net investment of Gold Ltd in the joint venture entity cannot be directly determined from the provided information using the equity method without considering the share of losses and the initial investment amount. The equity method involves adjusting the value of the investment for the investor's share of the joint venture's profits or losses, which in this case involves accumulated losses and the initial and additional contributions. The provided figures do not allow for a straightforward calculation under the options given.

Question 9

The one-line method of accounting for joint ventures is the same as the equity method of accounting for investments in associates.

Accepted Answer

The one-line method and the equity method are both used for accounting for investments, with the one-line method specifically used for joint ventures.

Question 10

What factors are relevant to the choice of accounting methods for venturers in jointly controlled entities?

Accepted Answer

The answer of What factors are relevant to the choice...

Question 11

The line-by-line method of accounting,according to AASB 11,is required for interests in joint ventures that are:
A) jointly controlled entities.
B) jointly controlled operations.
C) jointly controlled assets.
D) both B and C.

Accepted Answer

The line-by-line method of accounting is required for interests in joint ventures that are both jointly controlled operations and jointly controlled assets, according to AASB 11. Jointly controlled entities are accounted for using the equity method.

Question 12

Midstream Ltd and Delta Ltd enter into a business undertaking to lease a 100-hectare vineyard from Pinot Ltd.There is a contractual agreement between the two companies whereby they share control and must agree on all strategic financial and operating decisions.The two companies appoint Todman Management Pty Ltd as the vineyard manager.A separate set of accounting databases is established for the undertaking and each investor contributes cash capital to the undertaking and holds the assets as tenants in common.Each of the investing companies enters into a separate agreement with the vineyard manager to sell the produce of the vineyard in the market on their behalf.The business undertaking is:
A) a joint venture operation because the investors have agreed to a sharing of control and to a sharing of the outputs of the vineyard.
B) a joint venture entity because the undertaking has been established as a separate entity in which there is a simple sharing of control.
C) a simple partnership in which two companies operate as partners in a business undertaking with the intention of making a profit.
D) none of the above.

Accepted Answer

The contractual agreement between Midstream Ltd and Delta Ltd to share control and strategic decisions, as well as their contribution of cash capital and holding of assets as tenants in common, indicate that they have formed a joint venture operation. The appointment of a separate vineyard manager for the undertaking also supports this classification. The separate agreements with the vineyard manager for each investing company to sell produce on their behalf suggests that there may be a sharing of the outputs of the vineyard.

Question 13

In a venture in which there are jointly controlled assets,the venturers share the assets as tenants in common; which means that:
A) each venturer has a proportionate interest in each joint controlled asset.
B) each venturer has a distinct but unidentifiable share of each jointly controlled asset.
C) each venturer has a distinct and identifiable share of each jointly controlled asset.
D) none of the above.

Accepted Answer

Tenants in common typically have distinct and identifiable shares of an asset. This means each venturer has a specific portion of each joint asset under their control. Therefore, option C is the most appropriate answer.

Question 14

Midstream Ltd and Delta Ltd enter into a business undertaking to lease a 100-hectare vineyard from Pinot Ltd.There is a contractual agreement between the two companies whereby they share control and must agree on all strategic financial and operating decisions.The two companies appoint Todman Management Pty Ltd as the vineyard manager.A separate set of accounting databases is established for the undertaking and each investor contributes cash capital to the undertaking and hold the assets as tenants in common.The intention of the investing companies is to take their proportionate share of the produce of the vineyard to use in their own wineries.The business undertaking is:
A) a joint venture operation because the investors have agreed to a sharing of control and to a sharing of the produce of the vineyard.
B) a joint venture entity because the undertaking has been established as a separate entity in which there is a simple sharing of control.
C) a simple partnership in which two companies operate as partners in a business undertaking.
D) none of the above.

Accepted Answer

The arrangement between Midstream Ltd and Delta Ltd constitutes a joint venture operation as they have jointly entered into an undertaking to lease the vineyard, agreed to share control, and agreed to share the produce of the vineyard. Additionally, they have established a separate accounting database for the undertaking, and each investor has contributed cash capital and holds assets as tenants in common. These are all typical characteristics of a joint venture operation.

Question 15

A jointly controlled entity can be:
A) a company.
B) a partnership.
C) a trust.
D) all of the above.

Accepted Answer

A jointly controlled entity can take the form of a company, partnership or trust, or any other form that involves joint control by two or more parties. Therefore, all of the above options are correct.

Question 16

For a joint venture to be recognised under AASB 11,there must be a contractual arrangement.

Accepted Answer

According to AASB 11, a joint venture must have a contractual arrangement in order to be recognized. This contractual arrangement can be in the form of a written agreement or an implied agreement.

Question 17

Midstream Ltd and Delta Ltd enter into a business undertaking to lease a 100-hectare vineyard from Pinot Ltd.There is a contractual agreement between the two companies whereby they share control and must agree on all strategic financial and operating decisions.The two companies appoint Todman Management Pty Ltd as the vineyard manager.A separate set of accounting databases is established for the undertaking and each investor contributes cash capital to the undertaking.The intention of the investing companies is to market the produce of the vineyard and make a profit.The business undertaking is:
A) a joint venture operation because the investors have agreed to a sharing of control.
B) a joint venture entity because it has been established to operate the vineyard with the intention of making a profit.
C) a simple partnership in which two companies operate as partners in a business undertaking.
D) none of the above.

Accepted Answer

The business undertaking meets the criteria of a joint venture entity as it has been established by two companies with the intention of making a profit and sharing control. The appointment of a separate vineyard manager and the establishment of separate accounting databases further supports the establishment of a separate entity.

Question 18

Where a venturer is a subsidiary company,the equity method would be applied to an investment in a jointly controlled entity:
A) in the joint venture entity financial statements.
B) in the subsidiary's financial statements.
C) in the consolidated financial statements.
D) none of the above.

Accepted Answer

The answer of Where a venturer is a subsidiary company,the...

Question 19

The essential element that would distinguish a business undertaking as a partnership and NOT a joint venture operation would be:
A) the business undertaking makes a profit in the year.
B) there is no joint control agreement so that the undertaking is neither a joint venture entity nor a joint venture operation.
C) the business activity is an undertaking formed by the investors with the intention of making a profit.
D) none of the above.

Accepted Answer

A partnership is a business structure in which two or more individuals work together to carry on a business with a view to making a profit. Joint control agreement is a distinguishing factor between a joint venture and a partnership. In a joint venture, the parties involved have joint control over the operation, while in a partnership, the control may be shared differently. Therefore, the absence of a joint control agreement would make the undertaking a partnership rather than a joint venture operation.

Question 20

The concept of joint control:
A) includes unilateral control.
B) includes significant influence.
C) excludes unilateral control and significant influence.
D) none of the above.

Accepted Answer

Joint control refers to the sharing of control over an arrangement with one or more parties. It excludes unilateral control, which is control exerted by a single party over an arrangement, and significant influence, which is the ability to exert influence over the operating and financial policies of an entity without having control over it. Therefore, option C is the correct answer.

Quiz 8: Accounting for Joint Arrangements

According to AASB 11.24,a venturer must recognise its interest in a jointly controlled entity using:

Accounting Standard AASB 11 Joint Arrangements does not apply to investments in joint ventures:

Discuss the control test for asset recognition in relation to the line-by-line method of accounting for interests in jointly controlled operations and jointly controlled assets.

Discuss the issue of entitlement of venturers to share in profits of a jointly controlled entity.

An investor in a joint operation is required to account for the investment in accordance with AASB 11.

Jointly controlled operations and jointly controlled assets result from an unincorporated contractual association.

The one-line method of accounting for joint ventures is the same as the equity method of accounting for investments in associates.

What factors are relevant to the choice of accounting methods for venturers in jointly controlled entities?

The line-by-line method of accounting,according to AASB 11,is required for interests in joint ventures that are:

In a venture in which there are jointly controlled assets,the venturers share the assets as tenants in common; which means that:

A jointly controlled entity can be:

For a joint venture to be recognised under AASB 11,there must be a contractual arrangement.

Where a venturer is a subsidiary company,the equity method would be applied to an investment in a jointly controlled entity:

The essential element that would distinguish a business undertaking as a partnership and NOT a joint venture operation would be:

The concept of joint control: