CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING GERMAN/VALIX/K. DELA CRUZ/MARASIGAN

IFRS 11 JOINT ARRANGEMENTS

Part I - Theory of Accounts

1. It is characterized by a contractual arrangement whereby two or more parties have joint control
of the arrangement.
A. Joint arrangement
B. Joint operation
C. Joint venture
D. Jointly controlled asset

2. It is the contractually agreed sharing of control of an arrangement which exists only when
decisions about relevant activities require unanimous consent of the parties sharing control.
A. Control
B. Significant influence
C. Joint control
D. Solidary control

3. Under IFRS 11, which of the following may considered when determining whether the joint
arrangement is a joint operation or a joint venture?
A. Legal form (separate vehicle)
B. Terms and conditions (rights to assets and obligations to liabilities or rights to net assets)
C. Other circumstances (primary purpose of the joint arrangement)
D. All of the choices may be considered

4. Under full PFRS, what method shall the venturer utilize in accounting for its investment in a
joint venture?
A. Cost method
B. Equity method
C. Fair Value method
D. Any of the choices

5. What is the classification of the joint arrangement when the arrangement is structured without a
separate vehicle such as when the rights of each party to the total assets and obligations for total
liabilities relating to the arrangement are clearly established?
A. It shall be classified as joint venture.
B. It shall be classified as joint operation.
C. Neither joint venture nor joint operation.
D. It can be either a joint operation or joint venture depending on the company policy of the
parties to the joint arrangement.

6. What is the classification of the joint arrangement when the assets and liabilities relating to the
arrangement are held by a separate vehicle or when the arrangement is established with a
separate vehicle?
A. It shall be classified as joint venture.
B. It shall be classified as joint operation.
C. Neither joint venture nor joint operation.
D. It can be either a joint operation or joint venture depending on the legal form of the separate
vehicle, terms of the contractual arrangement or other relevant facts and circumstances.

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Part II: Problem Solving

Problem 1. OGD Company and LRG Company entered into a joint arrangement with each other,
incorporating XLD Corporation in the process.

The contractual arrangement of XLD Corporation provides the parties with rights to the net assets of
the separate vehicle. However, assessing other facts and circumstances revealed that the activities of
XLD Corporation is primarily designed for the provision of output to OGD Company and LRG
Company, and prevents XLD corporation from selling of outputs to third parties. which indicates that
the parties have rights to substantially all the economic benefits of the assets of the arrangement.

OGD Company and LRG Company owns 55% and 45% of the outstanding shares of XLD Corporation,
respectively. The trial balance of XLD Corporation at the end of the year are as follows:

Cash 2,000,000 Accounts payable 1,800,000

Inventory 1,400,000 Notes payable 2,400,000
Building 5,000,000 Bonds payable 2,800,000
Land 6,000,000 Share capital 6,000,000
Expenses 1,600,000 Sales revenue 3,000,000
Total 16,000,000 Total 16,000,000

Other relevant information are as follows:

 Half of the inventory is owned by OGD Company, the rest are jointly owned by the operators.
 The building is owned by LRG Company
 The obligation to pay the notes payable is assumed by LRG Company
 The sales revenue includes sales to OGD Company and LRG for P500,000 and P400,000,
respectively. As of the end of the year, OGD Company and LRG Company has already sold
60% and 50% of these to third parties.

1. How much is the share of OGD Company in the total assets of the joint arrangement?
A. 5,100,000
B. 5,485,000
C. 6,365,000
D. 7,920,000

2. How much is the share of LRG Company in the total liabilities of the joint arrangement?
A. 2,400,000
B. 3,150,000
C. 4,470,000
D. 7,200,000

3. How much is the share of OGD Company in the sales revenue of the joint arrangement?
A. 2,600,000
B. 1,650,000
C. 1,430,000
D. 1,155,000

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Problem 2. Joint venturers WHT Company and ASN Company have a 45% and 40% interest in FUR
Corporation, respectively. The rest of the 15% ownership are widely dispersed to other investors. On
January 1, 2023, the investment in joint venture account in the books of WHT Company and ASN
Company amounted to P2,600,000 and P4,200,000. The following transactions were noted for the
calendar year 2023:
 FUR sold inventories to WHT for a gross profit of P400,000. As of the year end, WHT has
already sold 40% of these to third parties.
 ASN sold inventories costing P200,000 to FUR for P300,000. As of the year end, 10% of these
remain in FUR’s inventories
 On July 1, 2023, WHT sold a piece of equipment with carrying value of P1,000,000 to FUR for
P1,500,000. As of the date of sale, the said equipment has a remaining useful life of 5 years.
 On October 1, 2023, FUR sold a piece of machinery to ASN at a loss of P600,000. As of the
date of sale, the said machinery has a remaining useful life of 4 years.
 FUR was able to generate a net income of P5,000,000 for the year ended December 31, 2023,
and declared and paid P800,000 cash dividends on July 19, 2023.

1. How much is the investment income of WHT Company for the year ended December 31,
2023?
A. 2,250,000
B. 2,047,500
C. 1,939,500
D. 1,579,500

2. How much is the balance of the investment in joint venture account of ASN as of
December 31, 2023?
A. 6,421,000
B. 6,380,000
C. 6,101,000
D. 5,880,000

Problem 3. On January 1, 2023, BLY Company invested P1,000,000 on KHL Corporation for a 50%
interest. BLY Company, together with another entity, has obtained joint control over KHL Corporation.
After assessment of the circumstances in accordance IFRS 11, it was determined that the joint
arrangement should be treated as a joint venture.

The operations of the joint venture for 2023 resulted to a net loss of P2,800,000, but recovered with a
net income of P1,200,000 during 2024.

1. How much is the share in net loss to be recognized by BLY Company from its investment
in KHL Corporation for the year ended December 31, 2023?
A. 2,800,000
B. 2,000,000
C. 1,400,000
D. 1,000,000

2. How much is the investment in joint venture account to be presented by BLY Company as
of the year ended December 31, 2024?
A. 200,000
B. 400,000
C. 600,000
D. 1,200,000

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Problem 4. On January 1, 2023, LGN Company, a small and medium enterprise (SME), invested
P710,000 cash in DYN Company, a joint venture, for 50% interest. For the year ended December 31,
2023, the joint venture reported net income of P300,000 and distributed cash dividend in the amount of
P100,000. As of December 31, 2023, the fair value of the investment in joint venture is P700,000 and
the estimated cost of disposal is 10% of fair value. The value in use of the investment is estimated at
P600,000.

1. Under IFRS for SMEs, how much impairment loss should be recognized by LGN
Company for the year ended December 31, 2023 if the SME elects equity method?
A. 180,000
B. 210,000
C. 280,000
D. 0

2. Under IFRS for SMEs, how much is the carrying value of Investment in Joint Venture to
be reported by LGN Company as of December 31, 2023 if the SME elects cost method?
A. 600,000
B. 630,000
C. 700,000
D. 710,000

3. Under IFRS for SMEs, what amount will affect the current earnings of LGN Company
for the year ended December 31, 2023 if the SME elects fair value method?
A. 40,000
B. 50,000
C. (10,000)
D. (20,000)

END

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