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Advanced Accounting Part 1 Dayag 2015 Chapter 11
Advanced Accounting Part 1 Dayag 2015 Chapter 11
Problem I
1.
Oil Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,940,000
Revenue from Oil Pipeline (30% x P19,800,000) . . . . . . . . . . . . . . . . 5,940,000
Thus, the share of X Inc. in net income of the joint operations would be as follows:
Proportionate Total (100%
Share (30%) based)
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 5,940,000 P19,800,000
Less: Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000 12,000,000
Amortization expense: P18,000,000 ( 30%) / 20 years. . . . . . . . 900,000
P60,000,000 (100%) / 20 years. . . . . . . . _3,000,000
Net Income of the Joint Operation. . . . . . . . . . . . . . . . . . . . . . . . . . . . P 4,800,000
Multiplied by: 30% interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __________ ______30%
Net Income of X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 1,440,000 P 1,440,000
Problem II
1. The following journal entries would be recorded:
Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000,000
Steel Pipes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,200,000
Gain on steel pipes (70%* of gain). . . . . . . . . . . . . . . . . . . . . . . . . . . 3,360,000
Unrealized gain – contra account (30% of gain, P4,800,000) . . . . 1,440,000
The following should be observed in relation to the above journal entry:
• X should recognize a gain of P3,360,000 [70% x (P18,000,000 – P13,200,000)]*
• A portion of the gain can be recognized on the contribution of assets to a joint operation.
PFRS 11 indicates the following:
When an entity enters into a transaction with a joint operation in which it is a joint operator, such as a sale
or contribution of assets, it is conducting the transaction with the other parties to the joint operation and,
as such, the joint operator shall recognize gains and losses resulting from such a transaction only to the
*extent of the other parties’ interests in the joint operation. When such transactions provide evidence of a
reduction in the net realizable value of the assets to be sold or contributed to the joint operation, or of an
impairment loss of those assets, those losses shall be recognized fully by the joint operator.
• A gain can be recognized when the significant risks and rewards have been transferred.
Pipeline operating expenses (30% x P12,000,000). . . . . . . . . . . . . . . . . 3,600,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,940,000
Revenue from Pipeline (30% x P19,800,000) . . . . . . . . . . . . . . . . . . . 5,940,000
Amortization expense – pipeline (P18,000,000/20 years). . . . . . . . . . . 900,000
Accumulated depreciation - pipeline. . . . . . . . . . . . . . . . . . . . . . . 900,000
Thus, the share of X Inc. in net income of the joint operation would be as follows:
Revenue (30% x P19,800,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 5,940,000
Less: Operating expenses (30% x P12,000,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000
Amortization expense: P60,000,000 x 30% = P18,000,000 / 20 years. . . . . . . . . . . 900,000
Add: Gain on steel pipes [70%* x (P18,000,000 – P13,200,000)] . . . . . . . . . . . . . . . . . 3,360,000
Realized gain – amortization**(P1,440,000/20 years). . . . . . . . . . . . . . . . . . . . . . . _____72,000
Net Income of X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 4,872,000
*
PFRS 11 states that: “When an entity enters into a transaction with a joint operation in which it is a joint operator, such as a sale or
contribution of assets, it is conducting the transaction with the other parties to the joint operation and, as such, the joint operator shall
recognize gains and losses resulting from such a transaction only to the *extent of the other parties’ interests in the joint operation.”
** Sales price of P18,000,000 – P13,200,000, cost of steel pipes = P4,800,000 x 30% = P1,440,000
3.
Amortization expense – pipeline (P18,000,000/20 years). . . . . . . . . . . P 900,0000
Less: Amortization expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ____72,000
Amortization expense for the year………………………………………… P 828,000
4.
Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P18,000,000
Less: Net unrealized gain, end of 20x4:
Unrealized gain – contra account (30% of gain, P4,800,000) . . P1,440,000
Less: Amortization for 20x4…………………………………………… ____72,000 __1,368,000
Net cost of Oil Pipeline………………………………………………………. P16,632,000
Problem III
1.
• Contributions of cash by the operators
Cash 360,000
KK Company 180,000
Cerise Company 180,000
Contribution by joint operators.
• Use of cash and loan to buy machinery & equipment and raw materials
Machinery and equipment 96,000
Cash 60,000
Loans payable – machinery and equipment 36,000
Contribution by joint operators.
Materials 78,000
Accounts payable 78,000
Acquisition of materials.
• Labor incurrence
Payroll 86,400
Cash 84,000
Accrued payroll 2,400
Annual labor.
2.
Cash
Contribution – Drei 180,000 Work-in-Process
60,000 Machinery and equipment
3. Labor 86,400 216,000
Contribution – Cerise 180,000 84,000 Labor to Finished Goods
Materials 57,600 a.
Bank loan 60,000 12,000 Machinery and equipment
Factory Overhead – heat, etc. 156,000 50,400 Accounts payable
Factory Overhead – depreciation 9,600 156,000 Factory overhead control
Balance,
Balance, 12/31/x4
12/31/x4 93,600
57,600
Total assets, P282,000
b. KK’s investment, P84,000
c. DD’s investment, P84,000
December 31, 20x4
Assets
Current Assets
Cash P 57,600
Finished goods inventory 24,000
Work-in-Process inventory 93,600
Materials inventory 20,400
Total current assets P 195,600
Non-current Assets
Equipment P 96,000
Less: Accumulated depreciation 9,600 86,400
Total Assets P282,000
Liabilities and Net Assets
Current Liabilities
Accrued payroll P 2,400
Accounts payable 27,600 P 30,000
Non-current Liabilities
Bank loan payable P 60,000
Loan payable – machinery and equipment 24,000 __84,000
Total Liabilities P 114,000
Net Assets 168,000
Total Liabilities and Net Assets P282,000
Problem IV
AACompany accounts for its interest in joint operation as follows:
January 1, 20x5, Shell Company records its interest in the joint operation, the asset cash being distinguished as an
asset in a joint operation by the use of (JO):
Cash in Joint Operation (JO). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,750,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,750,000
Contribution of cash to joint operations.
On December 31, 20x5, the joint operation has used the cash to purchase various assets, obtain loans, produce
inventory and incur expenses. As a joint contributor of 50% of the cash into the joint operation, Shell Company is
entitled to 50% of all the assets, liabilities, expenses and output of the joint operation.
From the balance sheet of the joint operation, it should be noted on the following items:
Net assets of the joint operation (P12,915,000 – P5,715,000)……..P 7,200,000
Inventory…………………………………………………………………… 900,000
From the costs incurred information, it can be seen that the joint operation generated P7,200,000 worth of inventory.
If only P900,000 is still on hand in the joint operation, then P6,300,000 worth of inventory must have been
transferred to each joint operators of P3,150,000.
The eventual transfer of inventory to the joint operators, the joint operation decreases the inventory balance and also
decreases the equity contribution (net assets) of the joint operators. The contributions section of the balance sheet of
the joint operation at the end of the period, after the transfer of inventory, is as follows (refer to the balance sheet
above):
Shell Company initial contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 6,750,000
Less: Inventory transferred. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __3,150,000 P 3,600,000
Petron Company initial contribution . . . . . . . . . . . . . . . . . . . . . . . . . ... P6,750,000
Less: Inventory transferred. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __3,150,000 _ 3,600,000
P 7,200,000
On December 31, 20x5, Shell Company makes the following entry in its records to replace “Cash in JO” with a
50% share of each of the accounts — assets and liabilities — in the balance sheet of the joint operation.
2. P5,805,000.
The entry also recognizes the inventory of P3,150,000 transferred to Shell Company from the joint operation.
Finished goods inventory in JO (P900,000 x 50% . . . . . . . . .. . . . . . 450,000
Work-in-Process inventory in JO (P2,925,000 x 50%). . . . . . . . . . . . . . 1,462,500
Materials inventory in JO (P450,000 x 50%). . . . . . . . . . . . . . . . . . . . . . 225,000
Heavy Machineries in JO (P6,750,000 x 50%) . . . . . . . . . . . . . . . . . . . 3,375,000
Finished goods inventory (P6,300,000 x 50%). . . . . . . . . . . . . . . . . . . . 3,150,000
Accounts payable in JO (P675,000 x 50%) . . . . . . . . . . . . . . . . . . 337,500
Accrued payroll in JO (P540,000 x 50%). . . . . . . . . . . . . . . . . . . . 270,000
Loans payable in JO (P4,500,000 x 50%). . . . . . . . . . . . . . . . . . . . . 2,250,000
Cash in JO [P6,750,000 – (P1,890,000 x 50%] . . . . . . . . . . . . . 5,805,000
Note that Shell Company’s share of cash in the joint operation is calculated by finding the difference between the
share at the beginning of the period, the initial contribution in this example, and the share at the end of the period.
Problem V
1. The joint operator, Entity A account for their interests in the joint operation as follows:
Entity X—in 20x4
Cash 8,400,000
Profit or loss (construction revenue) 8,400,000
To recognize the construction costs incurred in 20x4
Problem VI
The joint operator, Entity K account for their interests in the joint operation as follows:
In 20x4
Cash 12,000
Profit or loss (rental income) 12,000
To recognize income earned in renting to others the use of the aircraft
in 20x4.
Problem VII
1. The following are the summaries of the above transactions for a joint operation in the form of a partnership:
Investment in
Event Joint Operation AA BB CC
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
a. P 12,000 P12,000
b. 120,000 120,000
6,000 P 6,000
c. 180,000 120,000 P60,000
d. P588,000 P204,000 P312,000 P72,000
e. 3,600 3,600 3,600 10,800
6,000 6,000
f. * ________ ___3,000 ___3,000 ________ ________ ______ _______ _______
P318,000 P597,000 P210,600 P252,000 P315,600 P 60,000 P81,600 P 16,800
NI** _297,000 ________ ________ __112,200 ________ _147,000 _______ 31,800
P597,000 P597,000 P210,600 P364,200 P315,600 P195,000 P81,600 P48,600
Cash***
Settle-
ment _______ ________ _153,600 ________ ________ _120,600 _______ _33,000
Totals P597,000 P597,000 P364,200 P364,200 P315,600 P315,600 P81,600 P81,600
* purchases, P300,000; cost of goods sold, P294,000; ending inventory P6,000 x 50% = P3,000.
2. The cash settlement entry (refer to No. 1 for the computation of settlement) would be as follows:
AA, capital 153,600
BB, capital 120,600
CC, capital 33,000
Therefore, BB will pay P120,600 and CC will pay, P33,000 to AA as final settlement for the joint operations.
Problem VIII
1.
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Cost of investment
Consideration transferred P2,016,000
Less: Book value of stockholders’ equity of Son:
Common stock (P3,600,000 x 30%) P 1,080,000
Retained earnings (P1,080,000 x 30%) 324,000 1,404,000
Allocated excess (excess of cost over book value) P 612,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P240,000 x 30%) P 72,000
Increase in land (P960,000 x 30%) 288,000
Increase in building (P600,000 x 30%) 180,000
Decrease in equipment (P840,000 x 30%) ( 252,000)
Increase in bonds payable (P120,000 x 30%) ( 360,000) 252,000
Positive excess: Goodwill (excess of cost over fair value) P 360,000
3. Thus, the investment balance and investment income in the books of SS Company (the Joint Venturer) is as
follows:
Investment Income
Amortization 46,800 NI of AA
432,000 (P1,440,000 x 30%)
385,200 Balance, 12/31/x4
January 1, 20x4:
(1) Investment in SS Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,016,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,016,000
Acquired 30% joint control in AA Company.
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the allocated excess
that expires during 20x4.
3. Thus, the investment balance and dividend income in the books of SS Company (the Joint Venturer) is as
follows:
Investment in Joint Venture (AA Company)
Cost, 1/1/x4 2,016,000
The schedule of determination and allocation of excess presented above provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
December 31, 20x4:
(1) Investment in AA Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432,000
Investment income (P1,440,000 x 30%) . . . . . . . . . . . . . . . . . . . 432,000
Record share in net income of AA Company.
Thus, the investment balance and dividend income in the consolidated financial statement is as follows:
Investment in Joint Venture (AA Company)
Balance, 12/31/x4 2,016,000 216,000 (2) Amortization
(1) NI of AA 46,800 (3)Dividends – AA Company
(1,440,000 x 30%) 432,000 (600,000 x 30%)
0 0 12/31/x4
Investment Income
Amortization 46,800 NI of AA Company
432,000 (P1,440,000 x 30%)
385,200 Balance, 12/31/x4
Problem X – refer to Problem VIII and IX
1. P2,185,000
2. P385,200
Over/ Current
Account Adjustments to be amortized Under 30% thereof Life Year(20x4)
Inventories (sold in 20x4) P 240,000 P 72,000 1 P 72,000
Land 960,000 288,000 - -
Buildings – net ( 10 year remaining life) 600,000 180,000 10 18,000
Equipment – net ( 7 year remaining life) ( 840,000) ( 252,000) 7 (36,000)
Bonds payable (due January 1, 20x9) ( 120,000) ( 36,000) 5 ( 7,200)
Net P 840,000 P 252,000 P 46,800
The investment balance and dividend income in the consolidated financial statement is as follows:
Investment in Joint Venture (AA Company)
Balance, 12/31/x4 2,016,000 216,000 (2) Amortization
(1) NI of AA 46,800 (3)Dividends – AA Company
(1,440,000 x 30%) 432,000 (600,000 x 30%)
Investment Income
Amortization 46,800 NI of AA Company
432,000 (P1,440,000 x 30%)
385,200 Balance, 12/31/x4
Problem XI
1.
Fair value of equipment transferred to JK Company…………………………………. P 420,000
Carrying amount of equipment on J Company’s books………………………………… __120,000
Unrealized gain on transfer to JK Company……………………………………………. P 300,000
2. A Company’s journal entry to record the initial investment on January 1, 20x4 is as follows:
Investment in JK Company…………………………………………….. 420,000
Equipment………………………………………………………………….. 120,000
Unrealized gain – contra account…………………………………….. 300,000
Using the equity method of accounting, J Co. will record its 40% share of the yearly net incomes or losses
reported by JK Company.; in addition, it will recognize the unrealized gains in income over the life of the
equipment.
The December 31, 20x4, entries are as follows:
Problem XII
1. Unrealized gain, P120,000 – refer to No. 2 for computation
Realized gain, P180,000 – refer to No. 2 for computation
2.
J Co.’s journal entry to record the initial investment on January 1, 20x4, is as follows:
Investment in JK Company…………………………………………….. 420,000
Equipment………………………………………………………………….. 120,000 Note: J
Gain on sale of equipment…………………………………………….. 180,000 Co.
Unrealized gain – contra account…………………………………….. 120,000
recognizes a gain of P10,000, which is the portion of the gain deemed sold to outsiders.
This method of recognizing the gain from investing will be repeated over the next nine years, unless JK
Company sells this equipment before that period expires. If it does, J Co. will immediately take the balance in
the unrealized gains account into income.
3. P192,000 = P180,000 + P12,000 (refer to No. 2 for computation)
Problem XIII
1.
Sales proceeds……………………………………………………………………………………. P 78,000
Carrying amount of equipment on sold (P78,000/P420,000 x P120,000)…………….. __ 22,285
Immediate gain from selling equipment to K Inc.…………………………………………. P 55,715
Note: J gain is recognized for the portion (P78,000/P420,000) of the equipment deemed to be sold.
2. P244,285
A Company’s January 1, 20x4, journal entry to record the investment of equipment and the receipt of cash would
be as follows:
Cash……………………………………………………………………………... 78,000
Investment in JK Company…………………………………………….. 342,000
Equipment………………………………………………………………….. 120,000
Gain on transfer of equipment to JK Company……………….. 55,715
Unrealized gain – contra account…………………………………….. 244,285
3. P24,428
The December 31, 20x4, entries are as follows:
Investment in JK Company…………………………………………….. 48,960
Investment income from JK Company (40% x P122,400)…….. 48,960
3. P239,143
J Company’s January 1, 20x4, journal entry would be as follows:
Cash……………………………………………………………………………... 90,000
Investment in JK Company…………………………………………….. 330,000
Equipment………………………………………………………………….. 120,000
Gain on transfer of equipment to JK Company……………….. 60,857
Unrealized gain – contra account…………………………………….. 239,143
Note: The realized gain is based on the portion of the equipment deemed to be sold to the other venturers.
4. P23,914
The December 31, 20x4, entries are as follows:
Investment in JK Company…………………………………………….. 48,960
Investment income from JK Company (40% x P122,400)…….. 48,960 5.
Unrealized gain – contra account (P239,143/10)……………………. 23,914
Gain on transfer of equipment to JK Company……………….. 23,914
P84,771 = P60,857 (refer to No. 3) + P23,914 (refer to No. 4)
Multiple Choice Problems
1. b
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,930,000
Revenue from Pipeline (30% x P23,100,000) . . . . . . . . . . . . . . . . . . . 6,930,000
2. c – P4,200,000 + P1,050,000
The share of L Inc. in net income of the joint operations would be as follows:
Proportionate Total (100%
Share (30%) based)
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 6,930,000 P23,100,000
Less: Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200,000 14,000,000
Amortization expense: P21,000,000 ( 30%) / 20 years. . . . . . . . 1050,000
P70,000,000 (100%) / 20 years. . . . . . . . _3,500,000
Net Income of the Joint Operation. . . . . . . . . . . . . . . . . . . . . . . . . . . . P 5,600,000
Multiplied by: 30% interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __________ ______30%
Net Income of L. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 1,680,000 P 1,680,000
4. b
The following journal entries would be recorded:
Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000,000
Steel Pipes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,400,000
Gain on steel pipes (70%* of gain). . . . . . . . . . . . . . . . . . . . . . . . . . . 3,920,000
Unrealized gain – contra account (30% of gain, P5,600,000) . . . . 1,680,000
The following should be observed in relation to the above journal entry:
• L should recognize a gain of P3,920,000 [70% x (P21,000,000 – P15,400,000)]*
• A portion of the gain can be recognized on the contribution of assets to a joint operation.
PFRS 11 indicates the following:
When an entity enters into a transaction with a joint operation in which it is a joint operator, such as a sale
or contribution of assets, it is conducting the transaction with the other parties to the joint operation and,
as such, the joint operator shall recognize gains and losses resulting from such a transaction only to the
*extent of the other parties’ interests in the joint operation. When such transactions provide evidence of a
reduction in the net realizable value of the assets to be sold or contributed to the joint operation, or of an
impairment loss of those assets, those losses shall be recognized fully by the joint operator.
5. c – refer to No. 4
6. c – (P1,050,000 – P84,000)
A gain can be recognized when the significant risks and rewards have been transferred.
Pipeline operating expenses (30% x P14,000,000). . . . . . . . . . . . . . . . . 4,200,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,930,000
Revenue from Pipeline (30% x P23,100,000) . . . . . . . . . . . . . . . . . . . 6,930,000
Amortization expense – pipeline (P21,000,000/20 years). . . . . . . . . . . 1,050,000
Accumulated depreciation - pipeline. . . . . . . . . . . . . . . . . . . . . . . 1,050,000
11. a
Joint Operator’s Equity
XX Company: Contributions – January 1, 20x4 P 252,000
Cost of inventory distributed ( 134,400) P 117,600
12. d
13. a
14. c – [ P50,000 – (P20,000 + P40,000) + P45,000] = P35,000
15. a
16. a
17. b – (P1,200,00/5 years = P240,000 x 50% share = P120,000)
18. d
The entry in the records of joint operator Two (50%) is:
Cash in JO (50% x P50,000)………………………………………………25,000
Building in JO at book value since he is the contributor*
(50% x P40,000)……………………………………………………………20,000
Building, cost…………………………………………………………. 40,000
Gain on sale of building [(P50,000 – P40,000) x 50%]……..…… 5 000
* but the other joint operator (One) should debit the asset at fair value, thus the entry for the building and
cash contributed by joint operator One should be:
Building in JO at fair value (50% x P50,000)………………… 25,000
Cash in JO (50% x P50,000)…………………………………… 25,000
Cash…………………………………………………….. 50,000
22. c
The entry in the records of joint operator BB (40%) is:
Plant Assets in JO at fair value (40% x P120,000)……………………… 48,000
Obligation to JO at book value (for services) since he is
the contributor (60%* x P65,000)…………………………… 39,000
Gain on Provision of Services [60%* x (P80,000 – P65,000)] 9,000
* it represents his share as an obligation for his services he will render in the future.
23. c
24. b – the question is NOT for part of Abel’s entry, best answer is b.
Joint Operator Abel Joint Operator Cain
Cash in JO 500,000 Cash in JO (50% x P2M)* 1,000,000
Bldg in JO, at BV (50% x 500,000) 250,000 Cash in JO (50% x P1M)* 500,000
Building at book value 500,000 Building at FV (50% x P1M) 500,000
Gain on sale of building Cash 2,000,000
[(P1,000,000 – P500,000) x 50% 250,000 *or debit P1,500,000.
28. a
Rental income P532,000
Less: Aircraft operating expenses 210,000
Depreciation expense _140,000
Net income P182,000
29. a
Property, plant and equipment P2,800,000
Less: Accumulated depreciation __ 140,000
Net book value P2,660,000
30. a
Books of X
Inv. in JO X, capital Journal entry for settlement should be:
Z, capital……………………….. 6,500
4,000 6,500 2,500 X, capital…………………… 2,500
2,500 Y, capital…………………… 4,000
Books of Y
Inv. in JO Y. capital
Books of Z
Inv. in JO Z, capital
2,500 6,500
4,000
6,500
31. a
Total credits - Investment in Joint Operations…………………………………P 25,810
Total debits - Investment in Joint Operations…………………………………. 19,750
Net income or total gain (credit balance)…………………………………….P 6,060
32. d
Jose, capital
8,500 investment
1,212 share in net income (P6,060 x 2/10)
9,712
33. a – The 20,000 shares should be valued at market value, thus, P800,000 (20,000 shares x P40 per share)
34. b
Jose, capital
20,000 shares at P40/share P800,000 P 198,000 (4,500 x P44) – Sales
Expenses 3,000 125,000 (5,000 x P25)
4,700 13,600* (13,600 x P1) - Cash dividend
168,000 (6,000 x P28) - Sales
266,000 (7,600 x P35)
P807,700 P 770,600
Joint operation loss P 37,100
*
9/30 Shares issued (6,000 + 10,000 + 4,000) 20,000
10/20 Sold (4,500)
11/ 1 Stock dividend (20,000 – 4,500) x 20% 3,100
11/15 Sold (5,000)
Balance of shares outstanding before cash dividend 13,600
35. c
Investment in Joint Operations
Share in net loss P400,000 Investment (10,000 shares x P40)
P37,100 x (10,000/20,000) P18,550
P381,450
36. b
Unrealized loss due to decline in the value of shares at the time of investment
(P62 – P40) x 4,000 shares P68,000
Share in joint operation (P37,100 x 4/20) __7,420
Reduction of loss by cash dividend (P13,600 x 4/20) P98,140
37. a
Investment in Joint Operations
before net income or loss 15,000 25,000 ending inventory
10,000 net income
38. a (A- P10,000 x 50% = P5,000; B – P10,000 x 30% = P3,000; C – P10,000 x 20%)
39. a
Joint Operations Anson, Capital
Purchases 20,000 77,000 Sales (?) Unsold merchandise 600 20,000
Contr/Invest 20,000 18,600 Profit(50%)
Expenses 800
1,800 600 38,600
41. a
Investment in Joint Operations Santo, capital
Purchases 10,000 7,200 sales 10,000 Contribution/Invest
Freight-in 240 5,120 unsold 910 Share in NI
Freight-out 260 (P10,000 + P240) x 1/2
10,500 12,320 10,910
1,820
43. c
Investment in Joint Operations
before sale 6,500 3,500 Sales
Net loss 3,000
N, capital O, capital
1,100 14,500 1,100 6,500
13,400 5,400
Distribution of Loss:
M N O Total
Salary P 300 P - P - P 300
Balance, equally (1,100) (1,100) (1,100) (3,300)
P ( 900) P(1,100) P(1,100) P(3,000)
45. b
Revenues
Total cash receipts (P78,920 + P65,245) P144,345
Less: Cash investments (P30,000 + P20,000) 50,000
Cash sales P 94,345
Add: Proceeds from sale of remaining assets 60,000
Total Revenue P154,345
Less: Expenses (P62,275 + P70,695) 132,970
Net income P 21,375
46. c
Benin, capital Sucat, capital
Receipts 78,920 30,000 Contribution Receipts 65,425 20,000 Contribution
62,275 Disbursement 70,695 Disbursement
12,825 Share in NI (3/5) 8,550 Share in NI (2/5)
78,920 105,100 65,425 99,245
26,180 33,820
47. d
N’s books: it shows P5,000 receivable from P, and P3,000 payable to O; thus, N should receive net cash of
P2,000:
O, capital……………………………………………………………..3,000
Cash……………………………………………………………………2,000
P, capital……………………………………………………………….5,000
O’s books: it shows P5,000 receivable from P, and P2,000 payable to N; thus, O should receive net cash of
P3,000:
N, capital………………………………………………………………2,000
Cash…………………………………………………………………….3,000
P, capital……………………………………………………………….5,000
P’s books: it shows P2,000 payable to N and P3,000 payable to O; thus, in final settlement, P should pay a total
of P5,000; P2,000 and P3,000 to N and O, respectively:
N, capital…………………………………………………………….2,000
O, capital……………………………………………………………...3,000
Cash…………………………………………………………………….5,000
48. d
The Investment in Basket Co. as of December 31 is as follows:
Acquisition cost, January 2 P 250,000
Add (deduct):
Share in net income (P100,000 x 30%] 30,000
Share in dividends ( 0)
Amortization of allocated excess ( 0)
Investment balance on December 31 P 280,000
When identifying the relevant activities, consideration should be given to the purpose and design of the
arrangement. In particular, consideration should be given to the risks to which the joint arrangement was
designed to be exposed, the risks the joint arrangement was designed to pass on to the parties involved with the
joint arrangement, and whether the parties are exposed to some or all of those risks.
In many cases, directing the strategic operating and financial policies of the arrangement will be the activity that
most significantly affects returns. Often, the arrangement requires the parties to agree on both of these policies.
However, in some cases, unanimous consent may be required to direct the operating policies, but not the
financial policies (or vice versa). In such cases, since the activities are directed by different parties, the parties
would need to assess which of those two activities (operating or financing) most significantly affects returns,
and whether there is joint control over that activity. This would be the case whenever there is more than one
activity that significantly affects returns of the arrangements, and those activities are directed by different
parties.
Based on the ownership structure, even though Wallace can block any decision, Wallace does not control the
arrangement, because Wallace needs Zimmerman to agree — therefore joint control between Wallace and
Zimmerman (since their votes and only their votes, together meet the requirement). Because they are the only
combination of parties that collectively control the arrangement, it is clear that Wallace and Zimmerman must
unanimously agree.
The appropriate method for the joint venture is the equity method. The Income from Investment in Gold Co. on
December 31, 2015 is as follows:
Share in net income (P140,000 x 50%) P 70,000
Amortization of allocated excess ( 0)
Income from Investment on December 31, 2015 P 70,000
53. c
No joint control — multiple combinations of parties could be used to reach agreement and collectively control
the arrangement (i.e., Wallace and Zimmerman or Wallace and American could vote together to meet the
requirement). Since there are multiple combinations, and the contractual agreement does not specify which
parties must agree, there is no unanimous consent.
It should be noted that since there is no joint control as indicated per problem and the presence of 50%
ownership holding is presumed to give significant influence of Wallace over Goldman, unless it can be clearly
demonstrated that this is not the case. Therefore, Goldman Company is considered as an associate instead of a
joint venture.
The appropriate method for Investment in Associates is the equity method. The Income from Investment in
Gold Co. on December 31, 2015 is as follows:
Share in net income (P140,000 x 50%) P 70,000
Amortization of allocated excess ( 0)
Income from Investment on December 31, 2015 P 70,000
54. d
No joint control – multiple combinations could be used to reach agreement.
It should be noted that since there is no joint control as indicated per problem and the presence of 35%
ownership holding is presumed to give significant influence of Wallace over Goldman, unless it can be clearly
demonstrated that this is not the case. Therefore, Goldman Company is considered as an associate instead of a
joint venture.
The appropriate method for Investment in Associates is the equity method. The Income from Investment in
Gold Co. on December 31, 2015 is as follows:
Share in net income (P140,000 x 35%) P 49,000
Amortization of allocated excess ( 0)
Income from Investment on December 31 2015 P 49,000
55. d
Share in net income (P90,000 x 25%) P 22,500
Amortization of allocated excess ( 0)
Income from Investment on December 31 P 22,500
56. d
Share in net income (P100,000 x 25%) P 25,000
Amortization of allocated excess ( 0)
Income from Investment on December 31 P 25,000
57. b
The Investment in Dover as of December 31 is as follows:
Acquisition cost, January 1 P 400,000
Add (deduct):
Share in net income (P160,000 x 25%) 40,000
Share in dividends (P50,000 x 25%] (12,500)
Amortization of allocated excess (P90,000 x 25%) /10 years ( 2,250)
Investment balance on December 31 P 425,250
59. c
The Investment in Dover as of December 31 is as follows:
Acquisition cost, January 1 P 600,000
Add (deduct):
Share in net income (P320,000 x 25%) 80,000
Share in dividends (P80,000 x 25%] (20,000)
Amortization of allocated excess (P250,000 x 25%) /10 years ( 6,250)
Investment balance on December 31 P 653,750
60. b
Share in net income (P320,000 x 25%) P 80,000
Amortization of allocated excess ( 6,250)
Income from Investment on December 31 P 73,750
70. a
S Co.’s journal entry to record the initial investment on January 1, 20x4, is as follows:
Investment in ST Company…………………………………………….. 490,000
Equipment………………………………………………………………….. 140,000 Note: S
Gain on sale of equipment…………………………………………….. 210,000 Co.
Unrealized gain – contra account…………………………………….. 140,000
recognizes a gain of P210,000, which is the portion of the gain deemed sold to outsiders.
71. d – P245,000 = P210,000 (refer to No. 70) + P35,000
The December 31, 20x4, entries are as follows:
Investment in ST Company…………………………………………….. 57,120
Investment income from ST Company (40% x P142,800)…….. 57,120 Note: A
portion of
the
Unrealized gain – contra account (P350,000/10)………………………. 35,000
Gain on transfer of equipment to ST Company……………….. 35,000
unrealized gain is taken into income each year.
72. c
Sales proceeds……………………………………………………………………………………. P 91,000
Carrying amount of equipment on sold (P91,000/P490,000 x P140,000)…………….. __ 26,000
Immediate gain from selling equipment to T Inc.…………………………………………. P 65,000
Note: A gain is recognized for the portion (P91,000/P490,000) of the equipment deemed to be sold.
73. d
The Company’s January 1, 20x4, journal entry to record the investment of equipment and the receipt of cash
would be as follows:
Cash……………………………………………………………………………... 91,000
Investment in ST Company…………………………………………….. 399,000
Equipment………………………………………………………………….. 140,000
Gain on transfer of equipment to ST Company……………….. 65,000
Unrealized gain – contra account…………………………………….. 285,000
74. a
The December 31, 20x4, entries are as follows:
Investment in ST Company…………………………………………….. 57,120
Investment income from ST Company (40% x P142,800)…….. 57,120 75. c -
on
Unrealized gain – contra account (P285,000/10)………………………. 28,500
Gain on transfer of equipment to ST Company………………... 28,500
December 31 year-end, the P93,500 (P65,000 + P28,500) gain on transfer of equipment to ST Company will
appear in S Co’s 20x4 income statement. The unamortized balance of the S’s share of the unrealized gain of
P256,500 (P285,000 – P28,500) will be offset against the investment account.
76. a
Sales proceeds:
From T Inc.’s investment in ST Company……………………………. P 91,000
From borrowings of ST Company……………………………………... P 14,000
T Inc.’s proportion……………………………………………………………. __ 60% __ 8,400
P 99,400
Return of equity to S Company:
From T Inc.’s investment in ST Company……………………………. P 14,000
S Company’s proportion of ST borrowings…………………………. __ 40% ___5,600
Total cash received……………………………………………………………. P 105,000
Note: When some of the cash received by S Co. comes from joint venture borrowings, only T Co.s share of the cash borrowed is
considered proceeds from the sale of equipment.
77. c
The gain from selling is computed as follows:
Sales proceeds……………………………………………………………………………………. P 99,400
Carrying amount of assets sold (P99,400/P490,000) x P140,000………………………..... __28,400
Immediate gain from selling equipment to T Inc.………………………………………….. P 71,000
78. c
The Company’s January 1, 20x4, journal entry would be as follows:
Cash……………………………………………………………………………... 105,000
Investment in ST Company…………………………………………….. 385,000
Equipment………………………………………………………………….. 140,000
Gain on transfer of equipment to ST Company……………….. 71,000
Unrealized gain – contra account…………………………………….. 279,000
Note: The realized gain is based on the portion of the equipment deemed to be sold to the other venturers.
79. b
The December 31, 20x4, entries are as follows:
Investment in ST Company…………………………………………….. 57,120
Investment income from ST Company (40% x P142,800)…….. 57,120 80. d –
In a joint operation, the party recognizes these assets and obligations without limitation, even if that results in
the liabilities exceeding the assets. In contrast, in a joint venture, a party has an interest in the net assets and
that party’s loss is limited to its investment. When a party has an interest in the net assets and any losses
exceed the investment, the losses are not recognized (i.e., the party does not recognize a negative investment).
Instead, such losses are recognized only to the extent that the party has a legal or constructive obligation to
make payments on behalf of the joint venture.
86. d – refer to No. 85 for computation
Share in revenue……................................................................................ P 550,000
Less: Share in expenses………………………............................................ 360,000
Share in net income.................................................................................. P 190,000
Quiz - XI
1. P 2,510
Investment in Joint Operations
Purchases 45,000 48,700 Sales
18,000 16,800
Interest expense 80 40 Dividend
50 100
63,130 65,640
2,510 2,510 Net income
3. P 300
Investment in Joint Operations
Purchases 950 800 sales
Expenses 150 600
1,100 1,400
300 Net income
5. P 21,000
Investment in Joint Operations Tan, capital
15,000 before P/L 27,000
10,500 unsold merchandise unsold merch. 10,500 4,500 share in NI (1/3 x P13,500)
Salary – Reyes 12,000 25,500 net income 10,500 31,500
13,500 21,000
6. P8,316,000
The share of R Inc. in net income of the joint operations would be as follows:
Proportionate Total (100%
Share (30%) based)
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 8,316,000 P27,720,000
Less: Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,040,000 16,800,000
Amortization expense: P25,200,000 ( 30%) / 20 years. . . . . . . . 1,260,000
P84,000,000 (100%) / 20 years. . . . . . . . _4,200,000
Net Income of the Joint Operation. . . . . . . . . . . . . . . . . . . . . . . . . . . . P 6,720,000
Multiplied by: 30% interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __________ ______30%
Net Income of R. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P2,016,000 P 2,016,000
15. P1,609,000
The Investment in Wilton as of December 31 is as follows:
Acquisition cost, January 1 P 1,400,000
Add (deduct):
Share in net income (P600,000 + P750,000) x 30% 405,000
Share in dividends (P200,000 x 2 years x 30%] (120,000)
Amortization of allocated excess (P380,000 / 10 years) x 2 years ( 76,000)
Investment balance on December 31 P1,609,000
16. P950,800
The Investment in Wilton as of December 31 is as follows:
Acquisition cost, January 1 P 1,000,000
Add (deduct):
Share in net loss (P140,000 x 30%) ( 42,000)
Share in dividends (P24,000 x 30%] ( 7,200)
Amortization of allocated excess ( 0)
Investment balance on December 31 P, 950,800
16. c
Cost of investment in entity Z:
Purchase price…………………………………………………………………….. P 28,000
Add: Transaction costs (1% x P28,000)……………………………………… 280
Costs…………………………………………………………………………………. P 28,280
Less: Fair value on December 31, 20x4……………………..................... .P 15,000
Less: Costs to sell (5% x P15,000)…………………………………………….. 750 14,250
Impairment loss……………………………………………………………………….. P 14,030
17. d
No entry required only the decrease or increase in fair value is recognized to profit and loss.
18. a
Cost of investment in entity Z:
Purchase price…………………………………………………………………….. P 28,000
Add: Transaction costs (1% x P28,000)……………………………………… 280
Initial costs………………………………………………………………………….. P 28,280
Less: SME A’s share of entity Z’s loss for the year (25% x P20,000)……...... 5,000
Costs of investment, December 31, 20x4……………………………………. P23,280
Less: Fair value on December 31, 20x4……………………......................... .P 15,000
Less: Costs to sell (5% x P15,000)……………………………………………. 750 14,250
Impairment loss……………………………………………………………………….. P 9,030
19. b
Cost of investment in entity Z………………. ……………………………………………… ..P 28,000
Less: Fair value on December 31, 20x4…………………..................................................... 15,000
Decrease in fair value on December 31, 20x4……………………………………………P 13,000
20. a
Entity X:
Cost of investment in entity X………………. …………………………………………… P 10,000
Less: Fair value on December 31, 20x4…………………............................................... 13,000
Increase in fair value on December 31, 20x4………………………………………… P 13,000
Entity Y:
Cost of investment in entity Y………………. …………………………………………… P 15,000
Less: Fair value on December 31, 20x4…………………............................................... 29,000
Increase in fair value on December 31, 20x4………………………………………… P 14,000
21. d – refer to paragraphs PFRSs for SMEs paragraphs 15.10 and 15.11
20x4: P101,000 because recoverable amount – fair value less costs to sell of P98,000 is less than the cost of P101,000.
20x5: P101,000 because it is less than recoverable amount.
20x6: P86,000 because recoverable amount of P86,000 is less than cost of P101,000.
Theories
1. c
2. d
3. c
4. a
5. c
6. a
7. c
8. c
9. c
10. c
11. a