Deck 26: Equity Accounting Expanded and Joint Ventures

Question 1

When the equity method is discontinued due to there no longer being significant influence, the investment carrying amount becomes the initial 'cost' recognition for whatever method takes its place.

Answer 1

True

Question 2

A joint venture structured as a Jointly Controlled Entity can not take the form of a trust.

Answer 2

False

Question 3

Note Ltd is an associate of Sound Ltd.Sound Ltd owns 20% of Note Ltd's issued capital.During the current financial year, Note Ltd sold inventory to Sound Ltd at a profit to Note Ltd of $100 000.All inventory is on hand at the end of the current year.Note Ltd reported a profit of $250 000 for the current year.What is Sound Ltd's share of Note Ltd's current period profit?

A)$50 000
B)$30 000
C)$70 000
D)$270 000

Answer 3

B

Question 4

A company that controls other companies may not use the cost method (cost or fair value under AASB 139) to account for associates in its own separate statements.

Question 5

Jointly controlled operations (JCOs) are not legal entities and can not own assets or incur liabilities.

Question 6

Note Ltd and Score Ltd are associates of Sound Ltd.Sound Ltd owns 20% of Note Ltd's issued capital and 30% of Score Ltd's capital.During the current financial year, Note Ltd sold inventory to Score Ltd at a profit to Note Ltd of $100 000.All inventory is on hand at the end of the current year.Note Ltd reported a profit of $250 000 for the current year.What is Sound Ltd's share of Note Ltd's current period profit?

A)$44 000
B)$30 000
C)$70 000
D)$270 000

Question 7

A Jointly Controlled Entity could be structured as a partnership.

Question 8

The Sporty joint venture was set up to manufacture and produce a 'tennis robot'.This tennis robot fires tennis balls at specified speeds in specified directions.One of the three equal contributors to the joint venture, Pat Ltd contributed equipment with a carrying amount of $100 000 (cost of $180 000 less accumulated depreciation of $80 000).This equipment had a fair value of $140 000.How much profit (if any), would be recorded by Pat for this contribution?

A)$80 000
B)$40 000
C)$26 667
D)Nil

Question 9

Dick Ltd acquired 17% of the issued capital of Electronics Ltd and significant influence over the operations of Electronics Ltd on 1 March 20X0.Dick issued 400 000 Dick Ltd shares for the acquisition.The fair value of Dick Ltd's shares at this date was $9.50 each.The total fair value of Electronics Ltd's net assets at this date was $20 million.Under the method of equity accounting in AASB 128, what is the balance of the account 'Investment in Electronics Ltd' at this date?

A)$3 400 000
B)$3 800 000
C)$4 050 000
D)$3 442 500

Question 10

Lola Ltd acquired 20% of and significant influence over the operations of World Ltd on 1 July 20X0.At that date the equity of World Ltd comprised retained profits of $900 000 and paid up capital of $5 000 000.During the financial year ended 30 June 20X1, World Ltd revalued its plant and equipment upwards by $400 000, crediting this amount to its asset revaluation reserve.Lola Ltd does not control any entities.What is the journal entry, if any, to record this revaluation in the financial statements of Lola Ltd for the year ended 30 June 20X1 using equity accounting?

A) $\begin{array} { l c c } \text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \\\text { Investment in World Ltd } & 400000 & \\\text { Dividend revenue } & & 400000\end{array}$
B) $\begin{array}{lrc}\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \\\text { Investment in World Ltd } & 80000 & \\\text { Dividend revenue } & & 80000\end{array}$

C) $\begin{array} { l r r } \text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \\\text { Investment in World Ltd } & 80000 & \\\text { Share of associate's reserves } & & 80000\end{array}$
D)No journal entry is required because the revaluation does not affect World Ltd's profit

Question 11

Andre Pty Ltd has a 33.3% share in the Wimbledon joint venture (WJV).The manager of WJV only made two transactions in the past year-research and development costs incurred of $900 000 on 1 July and patent purchased of $300 000 on 1 October.Andre Pty Ltd considers both costs to represent assets each with a useful life of 10 years.Andre uses straight-line amortisation (depreciation for intangible assets).The costs were incurred evenly over the year.How much expense would be reported in Andre's profit or loss statement for this calendar year?

A)Nil
B)$75 000
C)$22 500
D)$17 500

Question 12

On 1 January 20X0, Scud Pty Ltd entered into a joint venture with three other parties.Each party is to share equally, and all parties made their contributions to the venture on 1 January 20X0.If the total fair value of all the joint venture assets on 1 January 20X0 was $1 200 000 and included in Scud Pty Ltd's contribution was cash of $150 000; what was the fair value of the other assets contributed by Scud Pty Ltd?

A)$50 000
B)$150 000
C)$300 000
D)Not able to be determined form the information

Question 13

Boris Ltd enters into a joint venture with Pete Ltd.The joint venture is unincorporated.Boris Ltd took out a $200 million loan to finance part of the $300 million cash it provided to the joint venture.Boris Ltd also provided licences with a carrying amount of $20 million and a fair value of $50 million.Pete Ltd will only provide equipment.If each party is to share equally the contributions and output, what was the fair value of the equipment provided by Pete Ltd?

A)$350 million
B)$320 million
C)$300 million
D)$200 million

Question 14

Which of the following statements is untrue under AASB 128:

A)Dividends from associates are always deducted from the investment account
B)Though there may be goodwill arising on purchase of shares in an associate there is no separate identification of a goodwill amount
C)There is no amortisation or impairment of a separate goodwill amount
D)Impairment testing of the goodwill amount is required in a way consistent with consolidation requirements

Question 15

Which of the following statements is untrue under AASB 128:

A)Share of profits received from an associate need not be dissected into:
1)those profits for which a corresponding incoming cash flow exists/will exit and
2)those profits for which any corresponding incoming cash flow is uncertain or unknown.
B)Share of profits received from an associate must be dissected into:
1)those profits for which a corresponding incoming cash flow exists/will exit and
2)those profits for which any corresponding incoming cash flow is uncertain or unknown.
C)Dividend received from associates always reduce the associate's investment account
D)There is no requirement that an associate will distribute cash dividends to the investor that are the equivalent of a share of associate's profit recorded by the investor.