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?

Question

Quizplus · Accepted Answer

To determine the profit on contribution of equipment, we need to compare the carrying amount with the fair value. Carrying amount is $100,000 and fair value is $140,000. 
Therefore, Pat Ltd will record a profit of $40,000 ($140,000 - $100,000). However, this profit would be shared equally among the three contributors, so Pat Ltd's share of profit would be $40,000/3 = $13,333.33. 
Therefore, the closest option is C) $26,667 (since it is not specified whether the profit is before or after tax).

The Sporty Joint Venture Was Set Up to Manufacture and Produce