JOINT ARRANGEMENT

The diagram below summarizes the definition and accounting for each type of joint arrangement, as well as the interaction
between PFRS 10, PFRS 11, PFRS 12, and PAS 28 Investment in Associates and Joint Ventures.

Control Alone?

Consideration in accordance with Joint Control?

PFRS 10

Disclosure in accordance with PFRS

12

Define type of joint arrangement Significant Influence?

in accordance with PFRS 11

(Joint Operations) Account for (Joint Ventures) Investment in PFRS 9

assets, liabilities, net assets accordance with PAS 28 – equity
method

Disclosure in accordance with PFRS 12

PFRS 9 – Financial Instruments

PFRS 10 – Consolidated Financial Statements
PFRS 11 – Joint Arrangements
PFRS 12 – Disclosure of Interests in Other Entities
PAS 28 – Investments in Associates and Joint Ventures

Investment in Joint Operations

The following account may affect the investment in joint operations account
Debit: Credit
 Merchandise contributions * Merchandise withdrawals
 Purchases * Merchandise returns
 Freight In * Purchase returns and allowances
 Sales Returns and Allowances * Purchase discounts
 Sales Discount * Sales
 Expenses * Other Income
Accounting Treatment for a Joint Operation – Partnership in Nature

Sample Problem

Aljon, Elerie and Mac agree to sell construction tools for a period of one month.
 Aljon agrees to construct a stand on the front of Mac’s lawn
 Mac will be paid P2,500 for cleaning up the lawn after one-month selling period
 Aljon, Elerie and Mac decided that net income, if any will be allocated first by the P2,500 payment to Mac and then by a
40% commission on individual sales
 The balance will be distributed 75% to Aljon and 25% to Elerie
 They agree that a cash box will complicate the matters and that all purchases and sales transactions will be out-of-pocket
and the responsibility of the individual
 Sales to Aljon, Elerie, and Mac are to be at cost, except that the ending inventory may be purchased at 50% of cost.
 All other sales are to be made at 100% markup on cost.

The activity of the joint operation is as follows:

 Aljon constructs the stand on the front lawn at a cost of P10,000
 Aljon pays for P100,000 for various construction tools. Mac pays P5,000 for permit to operate the concession or business
 Aljon purchases additional construction tools for P150,000, using P50,000 contributed by Elerie and P100,000 of personal
money
 Sales for the period were as follows: Aljon, P170,000; Elerie, P260,000; Mac P60,000
 Mac pays P9,000 for office supplies and these are distributed equally between Aljon, Elerie and Mac for their personal use
at home. Mac agrees to pay P5,000 for the stand.
 The balance of construction tools inventory was taken by Aljon

Purchases (100,000 + 150,000) 250,000

COGS [(170K + 260K + 60K)/2) 245,000 (at cost)
Ending Inventory 5,000 x 50% = 2,500

Investment in Joint
Activity Aljon, Capital (PHP) Elerie, Capital (PHP) Mac, Capital (PHP)
Ventures (PHP)
Dr Cr Dr Cr Dr Cr Dr Cr
a. 10,000 10,000
b. 105,000 100,000 5,000
c. 150,000 100,000 50,000
d. 490,000 170,000 260,000 60,000
e. 3,000 3,000 3,000 9,000
5,000 5,000
F* 2,500 2,500
Sub-total 265,000 497,500 175,500 210,000 263,000 50,000 68,000 14,000
232,500 93,500 112,500 26.500
Sub-total 497,500 497,500 175,500 303,500 263,000 162,500 68,000 40,500
Cash 128,000 100,500 27,500
settlement
497,500 497,500 303,500 303,500 263,000 263,000 68,000 68,000
• Aljon, Elerie and Mac decided that net income, if any will be allocated first by the P2,500 payment to Mac and then by
a 40% commission on individual sales

Net Income allocation

Aljon Elerie Mac Total

Allowance for cleaning-up operations 2,500 2,500
Commission
Aljon 40% of 170,000 68,000 68,000
Elerie 40% of 260,000 104,000 104,000
Mac 40% of 60,000 24,000 24,000
Balance (75%,25%) 25,500 8,500 34,000
Total 93,500 112,500 26,500 232,500

The cash settlement entry would be:

Aljon, Capital 128,000

Elerie, Capital 100,500
Mac, Capital 27,500