A 50% joint venturer acquires a further 10% interest in a jointly controlled operation,paying $2 000 000 to the jointly controlled operation whose assets including cash $1 000 000 have a fair value of $4 000 000.The acquisition will have the following effect on the venturer's cash position:

Question

Quizplus · Accepted Answer

The venturer pays $2,000,000 but receives a share of the cash in the jointly controlled operation. The venturer's share of the cash is 10% of $1,000,000, which is $100,000. Therefore, the net reduction in cash is $2,000,000 - $100,000 = $1,900,000. However, since the question asks for the effect on the venturer's cash position, the correct interpretation is that the cash position is reduced by the amount paid minus the cash received, which is $2,000,000 - $1,300,000 (10% of $4,000,000), resulting in a net reduction of $700,000.

A 50% Joint Venturer Acquires a Further 10% Interest in a Jointly