Testbank

to accompany

Applying International
Financial Reporting
Standards 3e
Prepared by
Emma Holmes

John Wiley & Sons Australia, Ltd 2013

 Chapter 30: Joint Arrangements

CHAPTER 30

Joint Arrangements
Learning Objectives

Learning Objective 30.1 Discuss the use of joint arrangements by companies to structure their
business

Learning Objective 30.2 Explain the nature of a joint arrangement and how to classify joint
arrangements into joint ventures and joint operations

Learning Objective 30.3 Explain the accounting undertaken by the joint operation itself

Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint
operation

Learning Objective 30.5 Discuss the disclosures required in relation to joint operations.

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Test Bank to accompany Applying International Financial Reporting Standards 3e

MULTIPLE CHOICE

1. Which of the following statements is not correct?

Learning Objective 30.1 Discuss the use of joint arrangements by companies to structure their
business
a. Joint arrangements may be entered into to manage risks involved in a project.
b. Joint arrangements may be entered into to provide the parties with access to new
technology or new markets.
*c. Joint arrangements require investors to have equal interests in the joint arrangement.
d. The key feature of a joint arrangement is that the parties involved have joint control
over the decision making in relation to the joint arrangement.

2. The particular relationship between parties that signifies the existence of a joint
arrangement is:
Learning Objective 30.2 Explain the nature of a joint arrangement and how to classify joint
arrangements into joint ventures and joint operations
a. significant influence by one party over the other party;
b. control over the operating policies of one party by another party;
c. shared influence by two parties over the activities of another party;
*d. joint control by the parties over the activities of an operation.

3. The matters generally dealt with in a joint arrangement contract include the:

I II III IV
 activity, duration and reporting obligations Yes Yes Yes Yes
 capital contribution of the venturers Yes Yes Yes No
 sharing of the output, expenses or results No Yes Yes Yes
 voting rights of the venturers No No Yes No

Learning Objective 30.2 Explain the nature of a joint arrangement and how to classify joint
arrangements into joint ventures and joint operations
a. I;
b. II;
*c. III;
d. IV.

4. IFRS 11 Joint Arrangements, provides that joint control exists where:

Learning Objective 30.2 Explain the nature of a joint arrangement and how to classify joint
arrangements into joint ventures and joint operations
*a. no single party is in a position to control the activity unilaterally;
b. the decisions in areas essential to the goals of the joint arrangement do not require
the consent of the parties;
c. no one party may be appointed as the manager of the joint arrangement;
d. one party alone has power to control the strategic operating decisions of the joint
arrangement.

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 Chapter 30: Joint Arrangements

5. Which of the following is correct?

Learning Objective 30.2 Explain the nature of a joint arrangement and how to classify joint
arrangements into joint ventures and joint operations
a. All joint arrangements which are not structured through a separate vehicle are
classified as joint ventures;
b. For a joint venture, the rights pertain to the rights and obligations associated with
individual assets and liabilities, whereas with a joint operation, the rights and
obligations pertain to the net assets.
*c. In considering the legal form of the separate vehicle if the legal form establishes
rights to individual assets and obligations, the arrangement is a joint operation. If
the legal form establishes rights to the net assets of the arrangement, then the
arrangement is a joint venture.
d. Where the joint operators have designed the joint arrangement so that its activities
primarily aim to provide the parties with an output it will be classified as a joint
venture.

6. Which of the following statements is not true in relation to joint control?

Learning Objective 30.2 Explain the nature of a joint arrangement and how to classify joint
arrangements into joint ventures and joint operations
*a. each party must have an equal interest for joint control to exist
b. joint control exists only where there is contractually agreed sharing of control
c. entities over which a party has joint control are accounted for in accordance with
IFRS 11 Joint Arrangements
d. joint control requires the unanimous consent of the parties sharing control

7. Wiseye Limited and Goodbody Limited agreed to form a joint operation to offer health
services. To start the operation the joint operators agreed to contribute cash of $30 000
each. The joint operation will record which of the following entries to recognise this event?
Learning Objective 30.3 Explain the accounting undertaken by the joint operation itself
a. DR Joint operator contributions $600 000
CR Cash $600 000;
b. DR Cash $600 000
CR Joint operator contributions $600 000;
c. DR Venturer’s equity – Wiseye Limited $300 000
DR Venturer’s equity – Goodbody Limited $300 000
CR Cash $600 000;
*d. DR Cash $600 000
CR Joint operation contribution – Wiseye $300 000
CR Joint operation contribution – Goodbody $300 000.

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Test Bank to accompany Applying International Financial Reporting Standards 3e

8. Cash contributed to a joint operation was used to purchase Equipment ($100 000) and
raw materials ($70 000). The following entry would be part of the overall recording of
these transactions:
Learning Objective 30.3 Explain the accounting undertaken by the joint operation itself
*a. DR Equipment $100 000
DR Raw materials $ 70 000
CR Cash $170 000;
b. DR Work in progress $170 000
CR Joint operation capital $170 000;
c. DR Cash $170 000
DR Contribution to joint operation $170 000;
d. DR Cash $170 000
CR Equipment $100 000
CR Raw materials $70 000.

9. Three joint operators are involved in a joint operation that manufactures ships chandlery.
At the beginning of the year the joint operation held $50 000 in cash. During the year the
joint operation incurred the following expenses: Wages paid $20 000, Overheads accrued
$10 000. Additionally creditors amounting to $40 000 were paid and the joint operators
contributed $15 000 cash each to the joint operation. The balance of cash held by the
joint operation at the end of the year is:
Learning Objective 30.3 Explain the accounting undertaken by the joint operation itself
a. $ 5000;
b. $25 000;
*c. $35 000;
d. $75 000.

10. 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. Company A Limited records the
management fee revenue as follows:
@Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
*a. DR Cash $20 000
CR Fee revenue $20 000;
b. DR Cash $14 000
CR Fee revenue $14 000;
c. DR Cash $ 12 000
CR Fee revenue $12 000;
d. DR Cash $8 000
CR Fee revenue $8 000.

11. A 50:50 joint operation was commenced between two participants. Participant One
contributed cash of $50 000, and Participant Two contributed a Building with a fair value

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 Chapter 30: Joint Arrangements

of $50 000 and a carrying amount of $40 000. Using the line-by-line method of accounting,
Participant Two would record:
@Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation

a. DR Building in JO $40 000

CR Building $40 000;
b. DR Building in JO $50 000
CR Building $40 000
CR Gain on sale of building $10 000;
c. DR Investment in joint operation $50 000
CR Building $40 000;
CR Gain on sale of building $10 000;
*d. DR Cash in JO $25 000
DR Building in JO $20 000
CR Building $40 000
CR Gain on sale of building $10 000.

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Test Bank to accompany Applying International Financial Reporting Standards 3e

12. A joint operation holds Equipment with a carrying amount of $1 200 000. The two joint
operators participating in this arrangement share control equally. They also depreciate
Equipment using the straight-line method. The Equipment has a useful life of 5 years. At
reporting date each joint operator must recognise the following entry, in relation to
depreciation, in its records:
Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
a. DR Depreciation $240 000;
*b. DR Depreciation $120 000;
c. DR Investment in joint operation $240 000;
d. DR Assets in joint operation $120 000.

13. In relation to the supply of a service to a joint operation by one of the joint operators,
which of the following statements is correct?
Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
a. a joint operator can recognise 100% of the earned through the supply of services to
the joint operation;
b. a joint operator is entitled to recognise a profit from the supply of services to itself;
*c. a joint operator cannot earn a profit on supplying services to itself;
d. a joint operator is not able to recognise the service revenue or service cost for the
services supplied to the joint operation.

14. Company A Limited and Company B Limited formed a joint operation and share equally
in the output of the joint operation. 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. Company A Limited records the
management fee revenue as follows:
Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
*a. DR Cash $20 000
CR Fee revenue $20 000;
b. DR Cash $14 000
CR Fee revenue $14 000;
c. DR Cash $ 6 000
CR Fee revenue $ 6 000;
d. DR Cash $10 000
CR Fee revenue $10 000.

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 Chapter 30: Joint Arrangements

15. 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:
Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
a. NIL
*b. $2 400
c. $3 600
d. $6 000

16. Three joint operators agree to an arrangement in which they have an equal share in an
agricultural joint operation. The work undertaken in setting up the joint operation cost
$300 000 and each operator contributed in cash. Each operator will need to recognise the
following accounting entry:
Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
a. DR Cost of joint operation product $300 000
CR Cash $300 000;
b. DR Inventory in JO $100 000
CR Cash $100 000;
c. DR Cash in JO $300 000
CR Cash $300 000;
*d. DR Cash in JO $100 000
CR Cash $100 000.

17. A 50:50 joint operation was commenced between two participants. Participant One
contributed cash of $50 000, and Participant Two contributed a Building with a fair value
of $50 000. Using the line-by-line method of accounting, participant One would record:
Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
a. DR Building in JO $50 000
CR Cash $50 000;
b. DR Cash in JO $50 000
CR Cash $50 000;
c. DR Investment in joint operation $50 000
CR Cash $50 000;
*d. DR Cash in JO $25 000
DR Building in JO $25 000
CR Cash $50 000.

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Test Bank to accompany Applying International Financial Reporting Standards 3e

18. A 60:40 joint operation was commenced between two participants. Participant One
contributed cash of $60 000, and Participant Two agreed to provide technical services to
the joint operation over a period of two years. The fair value of the services was
determined to be $40 000 and the cost to provide the services was estimated to be $35 000
Using the line-by-line method of accounting, participant Two would record:
Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
a. DR Cash in JO $30 000
CR Obligation to JO $30 000;
*b. DR Cash in JO $24 000
CR Obligation to JO $21 000
CR Profit on provisions of services $ 3 000;
c. DR Cash in JO $24 000
CR Obligation to JO $24 000;
d. DR Cash in JO $24 000
DR Receivable in JO $16 000
CR Obligation to JO $40 000

The following information relates to questions 19 and 20

A Ltd and B Ltd have established the AB Joint Operation. A Ltd has a 60% interest in the joint
operation and B Ltd has a 40% interest.

A Ltd contributed an asset with a carrying amount of $90,000 and a fair value of $120,000 and B
Ltd agreed to provide technical services to the joint operation over the first two years of
operations. The fair value of the technical services was agreed to be $80,000 and the cost to
provide the services was estimated at $65,000 at the inception of the joint operation.

19. As part of its initial contribution entry A Ltd will record a:

Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
a. Debit against the Services Receivable in JO account of $32,000;
*b. Debit against the Plant in JO account of $54,000;
c. Credit against the Plant of $120,000;
d. Credit against the Gain on Sale of Plant of $18,000.

20. As part of its initial contribution entry B Ltd will record a:

Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
a. Debit against the Services Receivable in JO account of $32,000;
b. Debit against the Plant in JO account of $36,000;
*c. Credit against the Obligation to JO of $39,000;
d. Credit against the Gain on Provision of Services of $6,000.

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21. On 1 July 20X0, the Ears & Eyes Joint Operation was established. The two joint operators
participating in this arrangement, Ears Ltd and Eyes Ltd, share control equally. Both joint
operators contributed cash to establish the joint operation. The joint operation holds
equipment with a carrying amount of $1 200 000. Both joint operators depreciate
equipment using the straight-line method and the depreciation is regarded a cost of
production. The equipment has a useful life of 5 years. At 30 June 20X1 Ears Ltd had
sold all of the inventory distributed to it and Eyes Ltd had sold 50% of the inventory
distributed to it. At 30 June 20X1 Venturer Eyes must recognise the following entry, in
relation to depreciation, in its records:
Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
a. DR Depreciation expense $240 000;
b. DR Accumulated depreciation $120 000;
*c. DR Inventory $60 000;
d. DR Cost of goods sold $120 000.

22. When eliminating any unrealised profit arising when a joint operator provides services to a
joint operation the profit is eliminated against:
Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
a. the investment in the joint operation;
b. retained earnings;
*c. work in progress, finished goods and other inventory related accounts;
d. cost of good sold.

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Test Bank to accompany Applying International Financial Reporting Standards 3e

The following information relates to questions 23 - 25

On 1 July20X0, Abel Ltd entered into a 50:50 joint operation with Tasman Ltd to develop an oil
field off the south coast of Tasmania. Each operator’s initial contribution was $2 million. Abel
contributed $1 million cash and equipment with a fair value of $1 million and a book value of
$500,000. Tasman’s contributed $2 million cash.

Additional information

 Production costs for the JO for the year ended 30 June 20X1 were:

$’000
Purchases 750
Wages 1,300
Management fee 400
Total production costs 2,450
Less: Work in progress (650)
Cost of production 1,800

 The remaining useful life of the equipment contributed by Abel is 5 years.

 Tasman is responsible for the day to day management of JO and has recognised the
management fee received during the year as revenue. The costs of providing these
management services to JO was $225,000.
 Tasman has sold all of the oil distributed to it and Abel has sold 50% of the oil distributed to
it by 30 June 20X1.

An extract of JO’s balance sheet at 30 June 20X1 shows:

$’000
Assets
Cash 650
Work in progress 650
Finished goods inventory 100
Plant & equipment 1,000
Accounts payable (100)
Net assets 2,300

23. Which of the following will not form part of Abel Ltd’s initial contribution entry?
Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
a. Debit against the Cash in JO account of $1 500 000;
*b. Debit against the Equipment in JO account of $500 000;
c. Credit against the Cash of $1 000 000;
d. Credit against the Gain on Equipment of $250 000.

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 Chapter 30: Joint Arrangements

24. Tasman Ltd’s initial contribution entry will include a debit to the Cash in JO account of:
Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
a. $1 000 000;
*b. $1 500 000;
c. $2 000 000;
d. $3 000 000.

25. The value of inventory distributed to Abel Ltd by the joint venture and subsequently sold
by 30 June 20X1 is:
Learning Objective 30.4 Prepare the journal entries required by a joint operator to recognise its
share of the assets, liabilities, revenues and expenses of the joint operation
*a. $425 000;
b. $850 000;
c. $900 000;
d. $1 700 000.

26. When a joint operator is accounting for an interest in joint operation it is required to
recognise all of the following in its financial statements:

I II III IV
The assets that it controls Yes Yes Yes Yes
The liabilities that it incurs Yes Yes No No
Its share of income from the sale of goods by the Yes No Yes No
joint operation
The expenses that it incurs Yes No No No

Learning Objective 30.5 Discuss the disclosures required in relation to joint operations
*a. I;
b. II;
c. III;
d. IV.

© John Wiley & Sons Australia, Ltd 2013 30.12