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.

Question

Quizplus · 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.

Midstream Ltd and Delta Ltd Enter into a Business Undertaking