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Chapter 6
Joint Arrangements
NAME: Date:
Professor: Section: Score:

QUIZ:
Use the following information for the next two questions:
A, B and C formed a joint operation. They agreed on the following:
 C is the appointed as the manager. As compensation, C is entitled to a ₱120 salary plus bonus of
25% of profit after deducting the salary and the bonus. However, C will be charged for the cost
of any unsold inventory.
 Interest of 10% per annum is allowed to A’s and B’s capital contributions.
 Any remaining profit or loss is divided equally.

The joint operation was complete after a year. The following were the transactions:
 A contributed cash of ₱400 and merchandise costing ₱800.
 B contributed merchandise costing ₱1,600. B paid freight of ₱80 in the transfer.
 C purchased merchandise worth ₱400 using A’s cash contribution.
 C paid expenses of ₱800 using his own cash.
 C made total sales of ₱3,200.
 All inventories were sold except one-half of those contributed by B.

1. How much is the joint operation’s profit after deduction for salary but before deduction for
bonus?
a. 192
b. 240
c. 360
d. 420

2. On the cash settlement between the joint operators,

a. A pays ₱1,288.
b. B pays ₱1,816.
c. C receives ₱96.
d. All of these

Use the following information for the next two questions:

A and B formed a joint operation. The following were the transactions during the year:
A B
Total purchases 400 320
Total sales 960 720
Expenses paid 800
Other income 40

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.
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3. How much is the profit (loss) of the joint operation?

a. 200,000
b. (200,000)
c. 180,000
d. (180,000)

4. On the cash settlement between the joint operators,

a. A pays B ₱368
b. B pays A ₱368
c. A pays B ₱428
d. B pays A ₱428

5. A, B and C formed a joint operation which was completed during the year. A, the appointed
manager, is entitled to a bonus of 10% of the profit before deducting the bonus. Any remaining
profit or loss is divided equally. On the joint operation’s completion date, B’s and C’s books
show the following balances before adjusting and closing entries:
Books of B Books of C
Account with A 16 Cr. 16 Cr.
Account with B 48 Cr.
Account with C 56 Dr.

The unsold merchandise was charged to A at a cost of ₱88. On the cash settlement between the joint
operators,
a. A receives ₱48.
b. B pays ₱72.
c. C pays ₱32.
d. a and c

6. A, B and C formed a joint operation. Profit or loss shall be divided equally. On the joint
operation’s completion date, the books of A, the appointed manager, show the following account
balances:
Debit Credit
JO – Cash 80
Joint operation 20
B Co. 60
C Co. 40

A’s share in the joint operation’s profit is ₱16. A agreed to be charged for the unsold merchandise.
How much is the cost of unsold merchandise charged to A?
a. 28
b. 62
c. 68
d. 72

7. A, B, and C formed a joint operation. On the joint operation’s completion date, the books of A,
the appointed manager, show the following account balances:
Debit Credit
JO – Cash 80
Account with B 60
Accounting with C 88
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The cost of unsold inventory is ₱72. The joint operation’s profit is ₱44. How much is the balance of
the joint operation account before distribution of profit?
a. 28
b. 116
c. 56
d. 0

Use the following information for the next two questions:

A, B, and C formed a joint operation. The joint operators shall make initial contributions ₱40 each.
Profit and loss shall be divided equally. The following data relate to the joint operation’s
transactions:
A B C
Joint operation 32 Cr. 40 Cr. 48 Cr.
Expenses paid from JO cash 20 8 12
Value of inventory taken 20 24 16

8. How much is the joint operation’s sales?

a. 280
b. 40
c. 80
d. 76

9. How much is the cash settlement to B?

a. ₱80 receipt
b. ₱80 payment
c. ₱32 receipt
d. ₱76 receipt

10. On January 1, 20x1, PATRIMONY Co. entered into a joint arrangement classified as a joint
venture. For an investment of ₱2,000,000, PATRIMONY Co. obtained 30% interest in HERITAGE
Joint Venture, Inc. During the year, HERITAGE Joint Venture, Inc. reported profit of ₱4,000,000
and other comprehensive income of ₱800,000, i.e., a total comprehensive income of ₱4,800,000.
HERITAGE Joint Venture, Inc. declared dividends of ₱2,400,000. How much is the carrying
amount of the investment in joint venture on December 31, 20x1?
a. 2,720,000
b. 2,000,000
c. 2,480,000
d. 4,160,000

“Be joyful in hope, patient in affliction, faithful in prayer.” (Romans 12:12)

- END -
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SOLUTIONS:
1. B
Solutions:
Profit or loss is computed as follows:

Joint operation

Merchandise – A Sales – C
800 3200
Purchases - A's cash 400
Merchandise – B Unsold inventory charged to C*
1600 840
Freight - in – B 80
Expenses – C 800

360 Profit before salary and bonus - Credit balance

Salaries expense - C 120

Profit after salary but before bonus - Credit
240 balance

Bonus expense** 48

192 Profit after salary and bonus

*Unsold inventory: (₱1,600 plus ₱80 freight-in) multiplied by one-half.

**Bonus is computed as follows:

P
B = P -
1 + Br

B = 240 – (240 ÷ 1.25%) = 48

2. C
Solution:
Profit is allocated to the joint operators as follows:

Allocation to: A B C Totals

Profit before salary and bonus 360

Salary to C 120 (120)
Bonus to C (see previous computation) 48 (48)
Profit after salary and bonus 192
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Interest on capital:
-
A - (300 x 10%) 120 (120)
B - (420 x 10%) 168 (168)
Profit after interests on capital (96)
Allocation (24 ÷ 3) (32) (32) (32) 96
Net share - as allocated 88 136 136 -

Cash settlement is determined as follows:

Joint operation - A

Inventory contributed by A 400

Cash contribution 800

Net share in profit 88

Cash settlement – receipt 1,288

Joint operation - B

Inventory contributed 1,600

Freight paid 80

Net share in profit 136

Cash settlement – receipt 1,816

Joint operation – C

Cost of inventory
Expenses paid 800 840 taken

Net share in profit 136

Cash settlement – receipt 96

3. A
Solution:
Requirement (a): Profit or loss
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Joint operation - A

Purchases – A Sales – A
400 960
Purchases – B Sales – B
320 720
Expenses – A Other income – B
800 40

200 Profit - credit balance

4. B
Solution:
Profit is allocated as follows:

Allocation to: A B Totals

Profit for the year 200

10% commission on purchases:

(10% x 400) – A 40 (40)

(10% x 320) – B 32 (32)

20% commission on sales:

(20% x 960) – A 192 (192)

(20% x 720) – B 144 (144)

Total to be divided equally (208)

Allocation: (208 ÷ 2) (104) (104) 208

Net share - as allocated 128 72 -

Cash settlement is determined as follows:

Joint operation - A

Purchases Collections on sales

400 960
Expenses 800

Net share 128

Cash settlement – receipt 368

Joint operation – B

Purchases 320 720 Collections on sales

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Net share Collections on other income

72 40

368 Cash settlement - payment

5. C
Solution:
The joint operation’s profit is computed as follows:

Joint operation

Account with A 16 56 Account with C

Account with B 48 88 Unsold inventory

80 Profit before bonus - credit balance

Profit is allocated as follows:

Allocation to: A B C Totals

Profit before bonus 80

Bonus to A (80 x 10%) 8 (8)

Profit after bonus 72

Equal allocation (72 ÷ 3) 24 24 24 (72)

As allocated 32 24 24 -

Cash settlement is determined as follows:

Joint operation – A

Contributions 16 88 Inventory taken

Net share in profit 32

40 Cash settlement - payment

Joint operation – B

Contributions 48

Net share in profit 24

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Cash settlement – receipt 72

Joint operation – C

56 Withdrawals

Net share in profit 24

32 Cash settlement - payment

6. C
Solution:

Joint operation

Debit balance 20

68 Unsold merchandise (squeeze)

48 Profit - credit balance (₱16 x 3)

7. A
Solution:

Joint operation

Debit balance (squeeze) 28

72 Unsold merchandise

44 Profit - credit balance

8. A
Solution:

Joint operation

Initial contributions
(10 x 3) 120

Expenses (5 + 2 + 3) 40 280 Sales (squeeze)

120 Credit balance (8 + 10 + 12)

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9. D
Solution:
Joint operation

Initial contributions (40 x 3) 120 280 Sales

Expenses (20 + 8 + 12) 40 60 Unsold merchandise (20+24+ 16)

180 Profit - net credit balance

Joint operation – B

Inventory
Contributions 40 24 taken

Share in profit (180 ÷ 3) 60

Cash settlement - receipt 76

10. A
Solution:
Initial investment, Jan. 1 2,000,000
Share in profit of joint venture (4M x 30%) 1,200,000
Share in OCI of joint venture (800K x 30%) 240,000
Dividends received from joint venture (2.4M x 30%) (720,000)
Investment in joint venture, Dec. 31, 20x1 2,720,000