Company A Limited and Company B Limited formed a joint operation and share in the output of the joint operation 60:40. The joint operation paid a management fee of £20 000 to Company A Limited during the current period. The cost to Company A Limited of supplying the management service was £14 000. The amount of profit that Company A Limited will recognise in relation to the provision of the management fee to the joint operation is:

Question

Quizplus · Accepted Answer

The profit recognised by Company A Limited is the management fee received minus the cost of providing the management service: £20,000 - £14,000 = £6,000. However, since Company A Limited and Company B Limited share in the output of the joint operation 60:40, Company A Limited will only recognise 60% of this profit, which is £6,000 x 60% = £3,600.

Company a Limited and Company B Limited Formed a Joint