PROBLEM 1

The following are the transactions of a joint operation formed by A, B and C during a year:
a. A contributed cash of ₱100 and merchandise costing ₱200.
b. B contributed merchandise costing ₱400. Freight-in paid by B is ₱20.
c. C made purchases amounting to ₱100 using the cash contributed by A.
d. C paid expenses of ₱200 using its own cash.
e. C made total sales of ₱800. All the merchandise was sold except one-half of those contributed by
B.
f. C is appointed as the manager of the joint operation. As compensation, C is entitled to a ₱30
salary plus bonus of 25% on profit after salary and bonus.
g. Interest of 10% per annum is allowed to A and B’s capital contributions.
h. C is charged for the cost of any unsold inventory. Profit or loss after necessary adjustments shall
be divided equally.

1. How much is the profit or loss after salaries and bonus of the joint operation? P48

Solution:
Profit or loss is computed as follows:
Joint operation
Merchandise – A 200 800 Sales – C
Purchases - A's cash 100
Merchandise – B 400 210 Unsold inventory charged to C*
Freight - in – B 20
Expenses – C 200
Profit before salary and bonus - Credit
90 balance
Salaries expense - C 30
Profit after salary but before bonus -
60 Credit balance
Bonus expense** 12
48 Profit after salary and bonus

*Unsold inventory:(₱400 plus ₱20 freight-in) multiplied by one-half.

**Bonus is computed as follows:
P
B = P -
1 + Br
B = 60 – (60 ÷ 1.25%) = 12
2. How much is A’s cash settlement? P322 receipt

Allocation to: A B C Totals

Profit before salary and bonus 90
Salary to C 30 (30)
Bonus to C 12 (12)
Profit after salary and bonus 48
Interest on capital:
A - (300 x 10%) 30 (30)
B - (420 x 10%) 42 (42)
Profit after interests on capital (24)
Allocation (24 ÷ 3) (8) (8) (8) 24
Net share - as allocated 22 34 34 -

Cash settlement is determined as follows:

Joint operation - A
Inventory contributed by A 100  
Cash contribution 200  
Net share in profit 22  
Cash settlement – receipt 322  

PROBLEM 2

A and B formed a joint operation. The following were the transactions during the year:

  A B
Total purchases 100 80
Total sales 240 180
Expenses paid 200
Other income 10

The joint operation was completed at the end of the year. Each joint operator is entitled to a 10%
commission on its purchases and a 20% commission on its sales. Any remaining profit or loss is
divided equally.

1. How much is B’s cash settlement? P92 payment

Solution:
Joint operation - A
Purchases – A 100 240 Sales – A
Purchases – B 80 180 Sales – B
Expenses – A 200 10 Other income - B
 50 Profit - credit balance

Profit is allocated as follows:

Allocation to: A B Totals

Profit for the year 50
10% commission on purchases:
(10% x 100) – A 10 (10)
(10% x 80) – B 8 (8)
20% commission on sales:
(20% x 240) – A 48 (48)
(20% x 180) – B 36 (36)
Total to be divided equally (52)
Allocation: (52 ÷ 2) (26) (26) 52
Net share - as allocated 32 18 -

Cash settlement is determined as follows:

Joint operation - A
Purchases 100 240 Collections on sales
Expenses 200
Net share 32
Cash settlement – receipt 92

Joint operation - B
Purchases 80 180 Collections on sales
Net share 18 10 Collections on other income
92 Cash settlement - payment

In the settlement, B will pay A cash of ₱92.

PROBLEM 3

1. A, B, and C formed a joint operation. Profit or loss shall be divided equally. The following were
taken from the joint operation’s books:

  Debit Credit
JO – Cash 20
Joint operation 5
B, Capital 15
C, Capital 10

A’s share in the joint operation’s profit is ₱4. A agreed to be charged for the unsold merchandise as
of year-end.
How much is the cost of unsold merchandise charged to A? P17

Solution:
If A’s share in the joint operation’s profit is ₱4 and profit or loss is divided equally between the three
joint operators, then total profit of the joint operation must be ₱12 (i.e., ₱4 for each joint operator
multiplied by 3 joint operators).
Unsold merchandise is squeezed after placing relevant data in the joint operation account as
shown below:

Joint operation
Debit balance 5  
17 Unsold merchandise (squeeze)
  12 Profit - credit balance (₱4 x 3)