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

Question

Quizplus · 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).

A 50:50 Joint Operation Was Commenced Between Suncorp Ltd and Stadium