Creed Ltd and Nickleback Ltd enter into a contractual agreement to form a jointly controlled operation on 1 July 2005.Creed Ltd is to contribute land and equipment and Nickleback Ltd agrees to contribute $8 million.It is agreed that they will share output,assets,and future contributions in the ratio 60:40 (Creed.Nickleback).The contribution by Creed Ltd has an agreed fair value of $9 million for the land and $3 million for the equipment.The book value of the land is $8 million and the net book value of the machinery is $2 million. What are the entries to record the formation of the joint venture operation in the books of Creed Ltd and Nickleback Ltd?
E) None of the given answers.

Question

Quizplus · Accepted Answer

Creed Ltd's entry:
Land (fair value)  $9,000,000
Equipment (fair value)  $3,000,000
Joint Venture (to record investment in JV)  $12,000,000

Nickleback Ltd's entry:
Joint Venture $8,000,000
Cash $8,000,000 (to record contribution)

Note: The entries are based on the fair value of the assets contributed, which is the amount the assets could be sold for on the open market, not the book value. The joint venture investment is recorded at the total fair value of the assets contributed by both parties.

Creed Ltd and Nickleback Ltd Enter into a Contractual Agreement