Chapter 3

Joint Arrangements
(IFRS 11)

A joint arrangement is an agreement of which two or more parties have joint control.

A joint arrangement has the following characteristics:

(a) The parties are bound by a contractual arrangement. An enforceable contractual

arrangement is often, but not always in writing, usually in the form of a contract
between the parties. Joint arrangements may be structured through a separate
vehicle. When joint arrangements are structured through a separate vehicle, the
contractual arrangements will in some cases be incorporated in the articles, or by-
laws of the separate vehicle.
(b) The contractual arrangement gives two or more of those parties joint control of the
arrangement.

Separate vehicle is a separately identifiable financial structure, including separate legal entities
or entities recognized by statute, regardless of whether those entities have a legal personality.
This maybe in the form of a partnership or corporation.

Joint control is the contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require the unanimous consent of the parties
sharing control.

TYPES OF JOINT ARRANGEMENT

Joint arrangements are established for a variety of purposes (eg as a way for parties to share
costs and risks, or as a way to provide the parties with access to a new technology or new
markets), and can be established using different structures and legal forms. Examples of joint
arrangements are construction services, shopping center operated jointly, joint manufacturing
and distribution of a product, bank operated jointly, and oil and gas exploration, development
and production activities.

A joint arrangement is either a joint operation or a joint venture.

Joint Operation

A joint operation is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets, and obligations for the liabilities, relating to the
arrangement. Those parties are called joint operators. To manage the activities of the joint
arrangement, joint operators may appoint an operator or manager, who will be an employee of
the joint operators.

Joint Venture

A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have right to the net assets of the arrangement. Those parties are called joint
ventures. This type is usually structured through a separate vehicle (a partnership or
corporation).

A joint arrangement in which the assets and liabilities relating to the arrangement are held in a
separate vehicle can be either a joint venture or a joint operation. A joint arrangement that is
not structured through a separate vehicle is a joint operation.

ACCOUNTING PROCEDURES

Joint operations

A joint operator shall recognize in relation to its interest in a joint operation:

(a) Its assets, including its share of any assets held jointly;
(b) Its liabilities, including its share of any liabilities incurred jointly;
(c) Its revenue from the sale of its share of the output arising from the joint operation;
(d) Its share of the revenue from the sale of the output by the joint operation; and
(e) Its expenses, including its share of any expenses incurred jointly.

When a joint operator sold or contributed assets to the joint operation, the joint operator shall
recognize gains and losses resulting from such transaction only to the extent of the other
parties’ interest in the joint operation. If such transaction provides 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 full by the joint operator.

When a joint operator purchases assets from the joint operation, it shall not recognize its share
of the gains and losses until it resells those assets to outsiders. When such transactions provide
evidence of a reduction in the net realizable value of the assets to be purchased or of an
impairment loss of those assets, a joint operator shall recognize its share of those losses.

Joint Ventures

A joint venture shall recognize its interest in a joint venture as an investment and shall account
for that investment using the equity method.

Under the equity method, on initial recognition the investment in joint venture is recognized at
cost, and the carrying amount is increased or decreased to recognize the venturer’s share of
the profit or loss of the joint arrangement after the date of acquisition. Distributions received
from the joint arrangement reduce the carrying amount of the investment. The venturer’s
share of the profit or loss is recognized in the venture’s profit or loss.

APPENDIX

Investment in Joint Ventures for Small and Medium-sized Entities (SMEs)

This appendix is an integral part (Section 15) of the International Financial Reporting Standards
(IFRS) for Small and Medium-sized Entities (SMEs).

Small and Medium-sized Entities (SMEs). These are entities:

a. With total assets of between P3 million to P350 million and total liabilities of
between 3 million to P250million.
b. That publish general purpose financial statements for external users.
c. That are not in the process of filing their financial statements for the purpose of
issuing any class of instruments in a public market; and
d. That do not have public accountability.

An entity has public accountability if:

a. Its debt or equity instruments are traded in a public market or in the process of
issuing such instruments for trading in a public market.
b. It holds assets in a fiduciary capacity for a broad group of outsiders as one of its
primary business. This is typically the case for financing companies, insurance
companies, brokers and dealers of securities, and investment banks.

Joint Ventures defined

Section 15 of IFRS for SMEs defines joint venture as a contractual arrangement whereby two or
more parties undertake an economic activity that is subject to joint control. Joint ventures can
take the form of jointly controlled operations, jointly controlled assets, or jointly controlled
entities.

The above definition is different from the definition in IFRS 11 (Joint arrangements) and IFRS 28
(Investments in associates and joint ventures). However, they share the following
characteristics:

(a) A contractual arrangement exists between the parties involved in the venture; and
(b) The contractual arrangement establishes joint control.

ACCOUNTING PROCEDURES

Jointly Controlled Operations

The operation of this type involves the use of the assets and the other resources of the parties
(venturer) rather than the establishment of a corporation, partnership or other entity, or a
financial structure that is separate from the parties themselves. Each party uses its own
property, plant and equipment and carries its own inventories. It also incurs its own expenses
and liabilities and raises its own finance, which represent its own obligations. The activities nay
be carried out by a manager, who is an employee of the parties. The agreement usually
provides a means by which the revenue and expenses incurred in common are shared among
the parties.

Jointly Controlled Assets

This type involves the joint control, and often the joint ownership, by the parties (venturers) of
one or more assets contributed to, or acquired for the purpose of, the joint venture and
dedicated to the purposes of the joint venture.

Jointly Controlled Entities

A jointly controlled entity is a joint venture that involves the establishment of a corporation,
partnership or other entity in which each venture has an interest. The entity operates in the
same way as other entities, except that a contractual arrangement between the venturers
establishes joint control over the economic activity of the entity.

This is similar to the joint venture type of joint arrangements under IFRS 11.

Measurement

Section 15 (Investments in Joint Ventures) of the IFRS for SMEs requires an entity to choose one
of the following three models to account for its investments in joint ventures:

(a) Cost Model. The investment in a joint venture is measured at cost (including transaction
costs) less any accumulated impairment loss. However, an investor using the cost model
is required to use the fair value model for any investment in a joint venture for which a
published price quotation exists. The investor shall recognize distributions received from
the investment as income without regard to whether the distributions are from
accumulated profits of the jointly controlled entity arising before or after the date of
acquisition.
(b) Equity Method. The investments in a joint venture is initially recognized at the
transaction price (including transaction costs) and adjusted thereafter for the post-
acquisition change in the investor’s share of profit or loss and other comprehensive
income of the joint venture.
(c) Fair Value Model. The investment in joint venture is initially recognized at the
transaction price (excluding transaction costs). After initial recognition, at reporting
 date, the investment in joint venture is measured at fair value. Changes in fair value are
recognized in profit or loss. However, an investor using the fair value model is required
to use the cost model for any investment in joint venture for which it is impractical to
measure fair value reliably without undue cost or effort.

Cost of Acquisition

The cost of acquisition in exchange for the control of the acquire includes the fair value of
assets given, liabilities incurred or assumed and equity instruments issued by the acquirer, plus
any directly attributable costs.

Transactions between a venture and a joint venture

When a venture contributes or sells assets to a joint venture, recognition of any portion of a
gain or loss from the transaction shall reflect the substance of the transaction. While the assets
are retained by the joint venture and provided the venture has transferred the significant risks
and rewards of ownership, the venture shall recognize only that portion of the gain or loss is
attributable to the interests of the other venturers. The venture shall recognize the full amount
of any loss when contribution or sale provides evidence of an impairment loss.

When a venturer purchases assets from a joint venture, the venture shall not recognized its
share of the profits of the joint venture from the transaction until it resells the assets to an
independent party. A venture shall recognize its share of the losses resulting from these
transactions in the same way as profits except that losses shall be recognized immediately
when they represent an impairment loss.

The above principles are similar to the principles of accounting for Joint Operation type of Joint
Arrangement (IFRS 11)
 PROBLEMS

Numbers 1 to 3 are based on the following data:

A and B (the parties) are two companies whose businesses are the construction of many types
of public and private construction services. They set up a contractual arrangement to work
together for the purpose of fulfilling a contract with the government for the construction of a
motor way between two cities for P24 million (a fixed price contract).

The contractual arrangement determines the participation shares of A and B and establishes:
a. Joint control of the arrangement;
b. The rights to all the assets needed to undertake the activities of the arrangement
are shared by the parties on the basis of their participation shares in the
arrangement;
c. The parties have joint responsibility for all operating and financial obligations
relating to the activities of the arrangement on the basis of their participation shares
in the arrangement; and
d. The profit or loss resulting from the activities of the arrangement is shared by A and
B on the basis of their participation shares in the arrangement.

In 2013, in accordance with the agreement between A and B:

 A and B each used their own equipment and employees in the construction activity
 A constructed three bridges needed to cross rivers on the route at a cost of P8 million
 B constructed all of the other elements of the motorway at a cost of P10 million.
 A and B shares equally in the P24 million jointly invoiced (and received from) the
government.

1. What is the gross profit of the joint arrangement?

a. P8 million
b. P14 million
c. P6 million
d. P4 million
2. What is the gross profit earned by A in 2013?
a. P6 million
b. P14 million
c. P4 million
d. P2 million
3. What is the gross profit earned by B in 2013?
a. P2 million
b. P14 million
c. P7 million
d. P6 milllion

Use the following data in answering Nos. 4 to 6

Two real estate companies, R and S (the parties) set up a separate vehicle (entity X) for the
purpose of acquiring and operating a shopping centre. The contractual arrangement between
the parties establishes joint control of the activities that are conducted by entity X. The main
feature of entity X’s legal form is that entity, not the parties, has rights to the assets, and
obligations for the liabilities, relating to the arrangement. These activities include the rental of
the retail units, managing the car park, maintaining the centre and its equipment, such as lifts,
and building the reputation and customer base for the centre as a whole.

The terms of the contractual arrangement are such that:

(a) Entity X owns the shopping centre. The contractual arrangement does not specify that
the parties have rights to the shopping centre.
(b) The parties are not liable in respect of the liabilities of entity X. if entity X is unable to
pay any of its liabilities, the liability of each to any third party will be limited to the
parties unpaid contribution.
(c) The parties have the right to sell or pledge their interests in entity X.
(d) Each party receives a share of the income from the shopping centre (which is the rental
income net of the operating costs) in accordance with interests in entity X.

Transactions of the contractual arrangement for 2012 and 2013 follow:

2012:
 Co. R and Co. S contributed P10 million each for one-half interest in the net assets of
Entity X.
 Organization expenses incurred amounts to P100,000.
 Entity X acquired land at a cost of P2 million.
 Constructed a building (shopping centre) at a cost of P15 million.
 Operating expenses for the year amounts to P1 million.
 Rental income collected from the tenants, P10 million.
 Net income or loss is distributed to the venturers in accordance with their interest
2013:
 Operating expenses (including depreciation) incurred for the year, P3.5 million
 Rental income collected for the year, P12 million
 Each venturer receives a share of the income or loss from rental income net of the
operating expenses.

4. What is the interest of Co. R in the joint venture as of December 31, 2012?
a. P14 M
b. P14.45 M
c. P 15 M
d. P20 M
5. What is the net income (loss) of Entity X on December 31, 2013?
a. P8.5 M
b. P12 M
 c. P15.5 M
d. P10.5 M
6. What is the interest of Co. S in the joint arrangement as of December 31, 2013?
a. P18.7 M
b. P14.5 M
c. P10.0 M
d. P14.0 M

Questions 7 to 9 are based on the following data:

On January 1, 2013, Red, White and Blue (the joint operators) jointly buy a helicopter for P30
million cash. The joint arrangement includes the following arrangements:
a. The parties are joint owners of the helicopter.
b. The helicopter is at the disposal of each party for 70 days each year.
c. The parties may decide to use the helicopter or lease it to a third party.
d. The maintenance and disposal of the helicopter require the unanimous consent of the
parties.
e. The contractual arrangement is for the expected life (20 years) of the helicopter and can
be change only if all the parties agree. The residual value of the helicopter is NIL.
f. Revenues and expenses are to be shared equally among the joint operators.
In 2013, the parties paid P300,000 to meet the costs of maintaining the helicopter.

In 2013 each party also incurred costs of running the helicopter when they made use of the
helicopter (eg Red incurred costs of P200,000 on pilot fees, aviation fuel and landing costs). In
2013 the parties earned rental income of P2.5 million by renting the helicopter to others.

7. What is the net income (loss) of the joint arrangement on December 31, 2013?
a. P5 M
b. P2 M
c. P1.5 M
d. P2.5 M
8. What is the book value of the helicopter on the books of Red on December 31, 2013?
a. P28.5 M
b. P19 M
c. P21 M
d. 9.5 M
9. What is the share of White in the net income (loss) of the joint arrangement on
December 31, 2013?
a. P166,667
b. P150,000
c. P125,000
d. P160,000

Question 10 and 11 are based on the following data:

Banks A and B (the parties) agreed to combine their corporate, investment banking, asset
management and service activities by establishing a separate vehicle (bank X). Both parties
expect the arrangement to benefit them in different ways.

The assets and liabilities held in Bank X are the assets and liabilities of Bank X and not the assets
and liabilities of the parties. Banks A and B each have a 40 percent ownership interest in Bank X,
with the remaining 20 percent being listed and widely held. The stockholders’ agreement
between bank A and bank B establishes joint control of the activities of bank X.

Transactions for the year 2013 and 2014 follow:

2013 2014
Investments: Bank A P50M P5M
Bank B 50M 5M
Revenues 10M 12M
Cost and expenses 6M 7M
Dividends paid – Bank X - 4M

10. What is the interest of bank A in the joint arrangement at December 31, 2013?
a. P50 M
b. P48.4 M
c. P48 M
d. P40 M
11. What is the interest of bank B in the joint arrangement at December 31, 2014?
a. P52.5 M
b. P52.4 M
c. P54.5 M
d. P50.5 M
12. Appendix problem:

On January 1, 2013 entities A and B each acquired 30 percent of the ordinary shares that carry
voting rights at a general meeting of shareholders of entity X for P300,000. Entities A and B
immediately agreed to share control over entity X. For the year ended December 31, 2013
entity X recognized a profit of P400,000.

On December 31, 2013 entity X declared and paid a dividend of P150,000 for the year 2013. At
December 31, 2013 the fair value of each venturer’s investment in entity X is P425,000. Entities
A and B uses the cost model to account for its investment in jointly controlled entities.
However, there is no published price quotation for entity X. investments are accounted for
using the cost model.

At December 31, 2013 the venturers must report their investment in entity X at:
a. P300,000
b. P345,000
 c. P255,000
d. P420,000
13. Using the same facts in No. 12, assuming on January 2, 2013 entity X also declared a
dividend of P100,000 for the year 2012 and at December 31, 2013 the fair value of each
venturer’s investment in entity X is P400,000.

How much dividend income each venture should recognize on December 31, 2013?
a. P45,000
b. P30,000
c. P75,000
d. P15,000

Numbers 14 and 15 are based on the following data (Appendix Problem):

Using the same facts in No. 12. However, there is a published price quotation for entity X.

14. How much income is to be recognized by each venture in profit or loss for the year
ended December 31, 2013?
a. P165,000
b. P170,000
c. P125,000
d. P200,000
15. At December 31, 2013 the venturers must each report its investment in entity X at:
a. P425,000
b. P300,000
c. P330,000
d. P345,000

Numbers 16 and 17 are based on the following data (Appendix Problem):

On March 1, 2013 entities A and B each acquired 30 percent of the ordinary shares that carry
voting rights at a general meeting of shareholders of entity AB for P300,000. Entities A and B
immediately agreed to share control over entity AB.

On December 31, 2013 entity AB declared a dividend of P100,000 for the year 2013. Entity AB
reported a profit of P80,000 for the year ended December 31, 2013. At December 31, 2013 the
fair value of each venturer’s investment in entity AB is P293,000 and the cost to sell amounts to
P3,000. There is no published price quotation for entity AB. Investments are accounted for
using the equity method.

16. At December 31, 2013 entities A and B must each report their investment in Entity AB
at:
a. P290,000
b. P293,000
c. P300,000
 d. P296,000
17. How much impairment loss should be recognized by each venture?
a. P10,000
b. P3,000
c. P13,000
d. P7,000

18. Appendix Problem:

On March 1, 2013 entities A and B each acquired 30 percent of the ordinary shares that carry
voting rights at a general meeting of shareholders of entity Z for P300,000. Entities A and B
immediately agreed to share control over entity Z.

On December 31, 2013 entity Z declared a dividend of P100,000 for the year 2013. Entity Z
reported a profit of P60,000 for the year ended December 31, 2013. At December 31, 2013 the
recoverable amount of each venturer’s investment in entity Z is P292,000 (fair value of
P295,000 less costs to sell of P3,000). Entities A and B uses the equity method to account for its
investment in entity Z. however, there is no published price quotation for entity Z.

On December 31, 2013, entities A and B must each report its investment in entity Z at:

a. P285,000
b. P290,000
c. P288,000
d. P260,000

Items 19 and 20 are based on the following data (Appendix Problem):

On January 1, 2013 entities A and B each acquired 30 percent of the ordinary shares that carry
voting rights at a general meeting of shareholders of entity M for 100,000. The purchase price is
equal to the fair value of 30 percent of entity M’s identifiable assets less 30 percent of its
identifiable liabilities.

Entities A and B immediately agreed to share control over entity M.

For the year ended December 31, 2013 entity M recognized a loss for P600,000. Entities A and B
have no constructive or legal obligation with respect of their jointly controlled entity’s loss and
have made no payments on its behalf.

Entity M recognized profit for the year ened December 31, 2013 of 800,000. There is no
published price quotation for entity M. Investments are accounted for using the equity method.

19. At December 331, 2013 how much investment in entity M should be reported by each
venture.
 a. P100,000
b. P-0-
c. P180,000
d. P40,000
20. At December 31, 2013 each venturer must measure their investment in entity M at:

a. P160,000
b. P100,000
c. P180,000
d. P-0-

21. APPENDIX PROBLEM

On January 1, 2013 entities A and B (the venturers) form a joint venture (entity X). Upon
incorporation of entity X, entities A and B each take up 50 percent of the share capital of entity
X. In return for their interests in entity X entities A and B each contribute P100, 000 to entity X.
Entity A contributes machine with a fair value of P100,000 and a carrying amount P80,000.
Entity B’s contribution is P100,000 cash.

The machine contributed by entity A has an estimated useful life of 10 years with no residual
value.

Entity X’s profit for the year ended December 31, 2013 is P30, 000 (after deducting depreciation
expense of P10,000 on the machine contributed by entity A). Entity A accounts for his
investment using the equity method.

What is the cost of investment of entity A on December 31, 2013.

a. P90,000
b. P121,000
c. P105,000
d. P106,000

22. Appendix Problem

On January 1, 2013 enties M and N each acquired 30 percent of the ordinary shares that
carry voting rights at general meeting of shareholders of entity’s Z for P300, 000.
Contingent consideration probable to be paid by entity M is measured reliably at
P50,000. Entities M and N immediately agreed to share control over entity Z.

For the year ended December 31, 2013 entity Z recognized a profit for P400, 000. On
December 30, 2013, entity Z declared and paid a dividend of P150, 000 for the year
2013. At December 31, 2013 the fair value of each ventures’ investment in entity Z is
P425,000. However, there is no published price quotation for entity Z.
 On December 31, 2013 entity M sell goods for P60,000 to entity Z. At December 31,
2013 this goods were in the inventories of Equity Z (ie they had not been sold by entity
Z). Entity M sells goods at a 50 percent mark-up on cost. Entities M and N account for
its investment in entity Z using the equity method.

At December 31, 2013 entity M would report its investment in entity Z at:
a. P439,000
b. P375,000
c. P363,000
d. P300,000
23. Appendix Problem
On January 1, 2013 entities X and Y each acquired 30 percent of the ordinary shares that
carry voting rights at a general meeting of shareholders of entity O for P300, 000.
Acquisition-related costs, such as broker and legal fees paid amounts to P50,000 by
entity X. Entities X and Y immediately agreed to share control over entity O.

For the year ended December 31, 2013 entity O recognized a profit of P400,000. On
December 30, 2013 entity O declared and paid a dividend of P150,000 for the year 2013.
At December 31, 2013 the fair value of each venturers’ investments in equity O is
P425, 000. However, there is no published price quotation for entity O.

In 2013 entity X purchased goods for P100,000 from entity O. At December 31, 2013
P60, 000 of the goods purchased from entity O were in entity X’s inventories (ie they
had not been sold by entity X). Entity O sells at a 50 percent mark-up on cost.

Entities X and Y account for its investment in entity O using the equity method.

At December 31, 2013 entity X would report its investment in entity O at:

a. P469,000
b. P369,000
c. P419,000
d. P375,000
 ANSWERS

1. C 6. A 11. B 16. A 21. D

2. C 7. A 12. A 17. A 22. A
3. A 8. D 13. C 18. A 23. C
4. B 9. A 14. B 19. B
5. A 10. B 15. A 20. A

SOLUTIONS AND EXPLANATIONS

1. Construction revenue P24M

Construction cost 18M
Gross profit P6M

2. Construction revenue (P24M/2) P12M

Construction cost 8M
Gross profit earned by A P4M

3. Construction revenue (P24M/2) P12M

Construction cost 10M
Gross profit earned by B P2M

4. Investment – Co. R P10M

Profit share:
Rental income 10M
Total expenses (P1M + .1M) 1.1M
Net profit 8.9M
Interest 50% 4.450
Interest – Co. R, December 31, 2012 P14,450M

5. Rental income P12M

Operating expenses 3.5M
Net income P8.5M

6. Investment – Co. S P10M

Profit share – 2012 4.450
Profit share – 2013 (P8.5M x 50%) 4.250
Interest – Co. S, December 31, 2013 P18,700M
7. Rental income P2.5M
Operating expenses (P.3M + .2M) (.5)
Depreciation expense (30M/20) (1.5)
Net income P.5M

8. Cost (P30/3) P10M

Accumulated depreciation (1.5/3) .5
Book value P9.5M

9. P500,000 x 1/3 = P166,667

10. Investment – 2013 P50M

Profit share (P10M – 6M) x 40% 1.6M
Interest – Bank A, December 31, 2013 P48.4M

11. Investment – 2013 P50M

Profit share – 2013 2
Profit share – 2014 (P12M – 7M) x 40% 2
Dividends received (P4M x 40%) (1.6)
Interest – Bank B, December 31, 2014 P52.4M

12. At December 31, 2014, the venturers must report their investment in entity X ( a jointly controlled
entity) at P300,000 (at cost). There is no impairment loss, because the fair value (P425,000) exceeds its
carrying amount P300,000.

13. The venturers must, without regard to whether the distributions are from entity X’s accumulated
profits arising before or after January 1, 2013, each recognize dividend income of P75,000 in profit for
the year ended December 31, 2013. The computation is:

Dividends declared on January 2, 2013 (P100,000 x 30%) P30,000

Dividends declared on December 31, 2013 (P150,000 x 30%) 45,000
Total dividend income P75,000

14. The venturers each recognize a total income P170,000 computed as follows:

Dividends income (P150,000 x 30%) P45,000

Increase in value of investment (P425,000 – 300,000) 125,000
Total income to profit or loss P170,000
15. At December 31,2013 the venturers must each report its investment in entity X at P425,000 (at fair
value). Even though the venturers each used the cost model as its accounting policy for investment in
entity X they account for their investments using the fair value model because entity Z has a published
price quotation.

16. At December 31, 2013 entities A and B must each report their investment in entity AB at P290,000
(at recoverable amount 293,000 – 3,000).

17. At December 31, 2013, the carrying amount is reduced to P290,000 (the lower of its recoverable
amount and its carrying amount before impairment (P300,000 cost). Each venture recognizes the
impairment of P10,000 in profit or loss for the year ended December 31, 2013.

18. At December 31, 2013 entities A and b must each report its investment in entity Z at P285,000
computed as follows:

Cost of investment P300,000

Profit share (10/12 x P60,000) x 30% 15,000
Dividend income (30% x P100,000) (30,000)
Investment in entity Z, December 31,2013 P285,000

19. At December 31, 2012 each venture must measure its investment in entity M at P0 computed as
follows:

Cost of investment P100,000

Loss share 100,000
Investment in entity M, December 31,2012 P 0

In 2012 each venturer does not recognize (P180,000 of its share of entity M’s losses. The loss recognized
by the entity is limited to its investment of P100,000).

20. At December 31, 2013 entities A and B must each measure their investment in entity M at P160,000
computed as follows:

Cost of investment, 2012 P100,000

Loss share 2012 (100,000)
Profit share, 2013:
Profit share, 2013 (30% x P800,000) 240,000
Unrecognized loss in 2012 (80,000) 160,000
Investment in entity M, December 31, 2013 P160,000

21. Investment of Machine, January 1, 2013:

Carrying amount P80,000

Realized gain (P100,000 – 80,000)50% 10,000 90,000
 Profit share (50% x 30,000) 15,000
Realized gain on machine (P10,000/10 yrs) 1,000
Investment account balance, December 31, 2013 P106,000

22. At December 31, 2013 entity M would report its investment in entity Z at P369,000 computed as
follows:

Cost of investment, January 1, 2013 (P300,000 + 50,000) P350,000

Profit share (30% x 400,000) 120,000
Unrealized profit (50/150 x 60,000) (6,000)
Dividend income (30% x 150,000) (45,000)
Investment in entity Z, December 31, 2013 P419,000

23. At December 31, 2013 entity X would report its investment in entity O at P419,000 computed as
follows:

Cost of investment, January 1, 2011 (P300,000 + 50,000) P350,000

Profit share (30% x 400,000) – (30% x 20,000) 114,000
Dividend income (30% x 150,000) (45,000)
Investment in entity O, December 31, 2013 P419,000
Unrealized profit (50/150 x 60,000) P20,000