Problem A

A,B,C sign an agreement to collectively purchase a yacht and to hire a company to manage and
operate the yacht on their behalf. The cost involved in running and operating the yacht business
and the revenue earned from the pipeline are shared by the three parties based on their ownership
percentage. All major operating and financing decisions related to the yacht business must be
agreed to by the three companies. The cost of purchasing the yacht was 56,000,000. The yacht
has an estimated 20 year useful life with no residual value. The management fee for operating
the yacht business for 2020 was 11,200,000. Revenue earned from the yacht business in 2020
was 18,480,000. A invested 16,800,000 for a 30% interest.
1. Compute the share of A in the revenue of the joint operation for 2020
Solution
A’s revenue computation
P 18,480,000 x 30% = P 5,544,000
Cash P 5,544,000
Revenue from the pipeline P 5,544,000
2. Compute the share of A in the expenses of the joint operation for 2020
Solution
Proportionate Total Share
Share (30%) (100%)
Revenue P 5,544,000 P 18,480,000
Less: Operating Expenses 3,360,000 11,200,000
Amortization Expense (P 16,800,000 x 100% / 20 yrs) 840,000
Amortization Expense (P 56,000,000 x 100% / 20 yrs) 2,800,000
Net Income of the Joint Operation 4,480,000
Multiply by 30% interest 30%
Net Income of A P 1,344,000 P 1,344,000

Expenses of A= P 11,200,000 x 30% = P 3,360,000

3. Compute the share of A in the gross profit/net income of the joint operation for 2020
Solution
Proportionate Total Share
 Share (30%) (100%)
Revenue P 5,544,000 P 18,480,000
Less: Operating Expenses 3,360,000 11,200,000
Amortization Expense (P 16,800,000 x 100% / 20 yrs) 840,000
Amortization Expense (P 56,000,000 x 100% / 20 yrs) 2,800,000
Net Income of the Joint Operation 4,480,000
Multiply by 30% interest 30%
Net Income of A P 1,344,000 P 1,344,000

4. Compute for the ending capital/investment of A

Solution
Net Income of A P 1,344,000
A’s Investment 16,800,000
A’s Ending Capital P 18,144,000

Using the same information instead of contributing cash for a 30% interest in the purchase of
yacht, A contributed fiberglass to be used by the company constructing the yacht. A had
manufactured fiberglass at a cost of 12,320,000. All parties to the contract agreed that the FV of
the fiberglass was 16,800,000 and the FV of the yacht once it was completed was 56,000,000.
The other operators have a 70% interest in the joint operation.
5. Determine the realized gain upon the contribution of the fiberglass
Solution
FV of the fiberglass P 16,800,000
Fiberglass cost 12,320,000
Realized gain of Fiberglass P 4,480,000
6. Determine the unrealized gain upon the contribution of fiberglass at year end
Solution
Realized gain of Fiberglass (P 4,480,000 x 70%) = P 3, 136,000

7. Determine the amortization/depreciation expense for the year 2020

Solution
FV of Yacht P 56,000,000
Divided by: Useful life 20 yrs
Amortization/depreciation expense for the year 2020 P 840,000

8. Determine the yacht, net cost at the end of 2020

Answer: zero (0)