CHAPTER 18-3

Two real estate companies, Lin and Kid (the parties) set up a separate vehicle (LK) for the purpose of acquiring
and operating a shopping mall. The contractual arrangement between the parties establishes joint control of the
activities that are conducted in LK. The legal form of LK is that LK, not the parties, has rights to the assets, and
obligations for the liabilities, relating to the arrangement. The activities of the arrangement include the rental of
the retail units, managing the car park, maintaining the mall and its equipment, such as escalators, and
establishing the reputation and customer base for the mall as a whole.

The terms of the contractual arrangement are such that:

a. Entity LK owns the shopping mall.
b. The liability of each party is limited to the unpaid amount of their capital contribution.
c. The parties have the right to sell or pledge their interest in the entity LK.
d. Each party receives a share of the income from operating the shopping mall (which is the rental income net of
the operating costs and expenses) in accordance with its interests in entity LK.

Summary transactions of the joint arrangement are as follows:

2017 2018
Contributions:
Company Lin P10 million P -
Company Kid 10 million -
Rental Income 4 million 5 million
Costs and Expenses 2 million 2 million
Dividends Declared and Paid 1 million

Required: Prepare journal entries in the books of Companies Lin and Kid to record their interest in the joint
arrangement for 2017 and 2018.
CAPITAL RATIO(10/20)
Solution:
Company Lin INCOME - C&E
2017:
Investment in Joint Venture 10,000,000
Cash 10,000,000
To record investment in the joint venture.

Investment in Joint Venture 1,000,000

Income in Joint Venture [(4,000,000-2,000,000)x10/20] 1,000,000
To record share in the net income of LK.

2018:
Cash 500,000
Investment in Joint Venture (1,000,000x10/20) 500,000
To record dividends received.

Investment in Joint Venture 1,500,000

Income from Joint Venture [(5,000,000-2,000,000)x10/20] 1,500,000
To record share in the net income of LK.

Investment in Joint Venture account balance:

2017 (10,000,000+1,000,000) P 11,000,000

2018 (11,000,000-500,000+1,500,000) P 12,000,000

Company Kid
2017:
Investment in Joint Venture 10,000,000
Cash 10,000,000
To record investment in the joint venture.

Investment in Joint Venture 1,000,000

Income in Joint Venture [(4,000,000-2,000,000)x10/20] 1,000,000
To record share in the net income of LK.

2018:
Cash 500,000
Investment in Joint Venture (1,000,000x10/20) 500,000
To record dividends received.

Investment in Joint Venture 1,500,000

Income from Joint Venture [(5,000,000-2,000,000)x10/20] 1,500,000
To record share in the net income of LK.

Investment in Joint Venture account balance:

2017 (10,000,000+1,000,000) P 11,000,000

2018 (11,000,000-500,000+1,500,000) P 12,000,000