8717

Theory of Accounts
1. A (Refer to PFRS 11:4)
2. C (Refer to PFRS 11:7)
3. C (Refer to PFRS 11:15)
4. A (Refer to PFRS 11:16)
5. B (Refer to PFRS 11:B 16)
6. D (Refer to PFRS 11:B 14-15)
7. A (Refer to PFRS 11:24)
8. A (Refer to PFRS 11:24)
9. D (Refer to PFRS for Medium Entities Section on Jointly Controlled Entity)
10. D (Refer to PFRS 11:20)

Problem Solving

Problem 1 (Joint Venture under Equity Method) (PFRS 11 and PAS 28)

1. Initial Measurement of Investment of Joint Venture at Historical Cost P1,000,000

Add: 2020 Share in Net Income of Joint Venture (Entity C) (P200,000 x 40%) 80,000
Less: 2020 Cash Dividend from Joint Venture (Entity C) (P100,000 x 40%) (40,000)
Book Value of Investment in Joint Venture (Entity C) on December 31, 2020 P1,040,000
Less: 2021 Share in Net Loss of Joint Venture (Entity C) (P2,000,000 x 40%) (800,000)
Book Value of Investment in Joint Venture (Entity C) on December 31, 2021 P 240,000 (C)

2. Initial Measurement of Investment of Joint Venture at Historical Cost P1,500,000

Add: 2020 Share in Net Income of Joint Venture (Entity C) (P200,000 x 60%) 120,000
Less: 2020 Cash Dividend from Joint Venture (Entity C) (P100,000 x 60%) (60,000)
Book Value of Investment in Joint Venture (Entity C) on December 31, 2020 P1,560,000
Less: 2021 Share in Net Loss of Joint Venture (Entity C) (P2,000,000 x 60%) 1,200,000
Book Value of Investment in Joint Venture (Entity C) on December 31, 2021 P 240,000 (C)

Problem 2 (Joint Operation under Contractual Provision) (PFRS 11)

1. Land owned by Entity A based on contract P3,000,000

Share of Entity A in co-owned inventory based on contract (P1,000,000 x 60%) 600,000
Total Assets to be reported by Joint Operator A P3,600,000 (C)

2. Note payable owed by Entity B based on contract P1,000,000

Share of Entity B on co-owed accounts payable (P2,000,000 x 40%) 800,000
Total Assets to be reported by Joint Operator B P1,800,000 (A)

3. Total Sales Revenue of Entity C (Joint Operation) P5,000,000

Less: Unrealized sales revenue to Entity A (P1,000,000 x 70%) (700,000)
Less: Unrealized sales revenue to Entity B (P2,000,000 x 40%) (800,000)
Realized sales revenue of Entity C (Joint Operation) P3,500,000
Multiplied by share of Joint Operator A x60%)
Sales revenue to be reported by Joint Operator A P2,100,000 (B)

Problem 3 (Joint Venture) (Intercompany transactions under Equity Method ) (PFRS 11 and PAS 28)

1. Share in unadjusted net income of joint venture (P1,000,000 x 60%) P600,000

Less: Unrealized gross profit on ending inventory (P50,000 x 20% x 60%) (6,000)
Investment Income to be reported by Entity A for 2020 P594,000 (C)

2. Initial Measurement of Investment in Joint Venture at Historical Cost P2,000,000

Add: Share in unadjusted net income of joint venture (P1,000,000 x 40%) 400,000
Add: Unrealized loss on sale of machinery (P20,000 x 40%) 8,000
Less: Realized loss on sale of machinery (P8,000/2 years x 6/12) (2,000)
Less: Dividend from Joint Venture (P400,000 x 40%) 160,000
Book Value of Investment in Joint Venture on December 31, 2020 P2,246,000 (A)
Problem 4: (Joint Venture) (Limit on Share in Net Loss of Joint Venture) (PAS 28 and PFRS 11)

1. Initial Measurement of Investment of Joint Venture at Historical Cost P2,000,000

Add: 2020 Share in Net Income of Joint Venture (P1,000,000 x 50%) 500,000
Less: 2020 Cash Dividend from Joint Venture (P300,000 x 50%) (150,000)
Book Value of Investment in Joint Venture on December 31, 2020 P2,350,000

Supposedly share in net loss on year 2021 (P6,000,000 x 50%) (P3,000,000)

Maximum limit on share in net loss (BV of Investment Account) (P2,350,000) (C)
Unabsorbed share in net loss (Disclosed in notes to FS) (P650,000)

2. Book Value of Investment in Joint Venture on December 31, 2020 P2,350,000

Less: 2021 share in net loss of joint venture (2,350,000)
Book Value of Investment in Joint Venture on December 31, 2021 P0
Add: 2022 share in net income of joint venture (P7M x 50%) – P650,000 2,850,000
Less: 2022 dividend from joint venture (P500,000 x 50%) (250,000)
Book Value of Investment in Joint Venture on December 31, 2022 P2,600,000 (B)

Problem 5: (Jointly Controlled Entity) (PFRS for Medium Entities)

1. Initial Measurement of Investment of Joint Venture at Historical Cost P500,000

Add: 2020 Share in Net Income of Joint Venture (P200,000 x 50%) 100,000
Less: 2020 Cash Dividend from Joint Venture (P60,000 x 50%) (30,000)
Book Value of Investment on Joint Venture before impairment loss P570,000
Less: 2020 impairment loss (P570,000 – P550,000 (Recoverable Amount)) (20,000)
Book Value of Investment under Equity Method P550,000 (A)

2. Book Value of Investment under Cost Method at Historical cost because

there is no impairment loss considering the recoverable amount is P550,000 P500,000 (D)

3. Book Value of Investment under Fair Value Model at Fair Value P600,000 (B)