Practical Accounting 2

PRACTICAL ACCOUNTING 2
THEORY & PRACTICE

ADVANCE ACCOUNTING
JOINT ARRANGEMENT
QUIZZER
Joint Arrangement
Joint Arrangements
I. Introduction
PFRS 11 prescribes the accounting for a 'joint arrangement', which is defined as contractual
arrangement over which two or more parties have joint control. It is important that entities
understand the implications and interplay of both PFRS 10 and PFRS 11 to ensure the
proper assessment of, and accounting for, current and future joint arrangements.
Names can be misleading. Some agreements that are referred to as 'joint arrangements'
actually include arrangements whereby one party has control of an entity. In these
arrangements, the entity with control would consolidate it and the other parti^ would account
for their interest in that entity based on the nature of their investment. Other arrangements
may not be referred to as 'joint arrangements', but may still be joint arrangements, as
defined by PFRS 11. In other words, the name of the agreement is not important it only
matters whether it meets the definition of a joint arrangement, as set out in PFRS 11.
PFRS 11 notes that a contractual arrangement is often, but not always, in writing (although
we expect unwritten agreements to be rare in practice). Statutory mechanisms can create
enforceable arrangements, either on their own or in conjunction with contracts among the
parties. A contractual agreement may be incorporated in the articles, charter or by-laws of
the entity (or the 'separate vehicle' — a new term that is a broader concept than 'entity')
II. Definitions
Joint arrangement An arrangement of which two or more parties have joint control
Joint control 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
Joint operation 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
Joint venture A joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement
Joint venture A party to a joint venture that has joint control of that joint venture
Party to a joint
arrangement An entity that participates in a joint arrangement, regardless of
whether that entity has joint control of the arrangement
Separate vehicle A separately identifiable financial structure, including separate legal
entities or entities recognized by statute, regardless of whether
those entities have a legal personality.
Joint Arrangement - Lecture Page 1

Advance Accounting
III. The Concept of Joint Control

A joint arrangement is an arrangement of which two or more parties have joint control.
A joint arrangement has the following characteristics:
The parties are bound by a contractual arrangement, and
The contractual arrangement gives two or more of those parties joint control of the
arrangement.
Joint control
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.
Before assessing whether an entity has joint control over an arrangement, an entity first
assesses whether the parties, or a group of the parties, control the arrangement (in
accordance with the definition of control in PFRS 10 Consolidated Financial Statements).
After concluding that all the parties, or a group of the parties, controls the arrangement
collectively, an entity shall assess whether it has joint control of the arrangement. Joint control
exists only when decisions about the relevant activities require the unanimous consent of the
parties that collectively control the arrangement.
The requirement for unanimous consent means that any party with joint control of the
arrangement can prevent any of the other parties, or a group of the parties, from making
unilateral decisions (about the relevant activities) without its consent.
A joint arrangement is either a joint operation or a joint venture.
IV. Types of Joint Arrangements

Joint arrangements are either joint operations or joint ventures:
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.
A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement. Those parties are called joint
venturers.
V. Classifying joint arrangements

The classification of a joint arrangement as a joint operation or a joint venture depends
upon the rights and obligations of the parties to the arrangement. An entity determines
the type of joint arrangement in which it is involved by considering the structure and form
of the arrangement, the terms agreed by the parties in the contractual arrangement and
other facts and circumstances.
Business Combination - Lecture Page 2

Joint Arrangement
Regardless of the purpose, structure or form of the arrangement, the classification of joint
arrangements depends upon the parties' rights and obligations arising from the
arrangement.
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.
In such cases, the contractual arrangement establishes the parties' rights to the assets,
and obligations for the liabilities, relating to the arrangement, and the parties' rights to the
corresponding revenues and obligations for the corresponding expenses.
VI. Financial statements of parties to a joint arrangement

Joint Operations - Accounting by a Joint Operator
A joint operator recognizes in relation to its interest in a joint operation:
Its assets, including its share of any assets held jointly;
Its liabilities, including its share of any liabilities incurred jointly;
Its revenue from the sale of its share of the output of the joint operation;
Its share of the revenue from the sale of the output by the joint operation; and its
expenses, including its share of any expenses incurred jointly.
A joint operator accounts for the assets, liabilities, revenues and expenses relating to its
involvement in a joint operation in accordance with the relevant PFRSs.
A party that participates in, but does not have joint control of, a joint operation shall also
account for its interest in the arrangement in accordance with the above if that party has
rights to the assets, and obligations for the liabilities, relating to the joint operation.
Accounting by the Joint Operation Itself
Where the joint operation is undertaken outside a formal structure, such as a corporation
or partnership, separate accounting records do not need to be kept for the joint operation.
However, for accountability reasons it is expected that the joint operation agreement would
require these records.
PFRS 11 does not provide standards on accounting for the joint operation itself. Following
are the situations wherein joint operations may arise.
A. Accounting Treatment for a Joint Operation (by an Unincorporated Joint Operation)

If the joint operation does not sell the output produced, but rather distributes it to the
operators, there is no profit or loss account raised by the operation. In preparing accounts
for the joint operation, the main purpose is to accumulate costs as incurred. These are
capitalized into a work in progress account, which is transferred to the operators as
inventory. Further, the joint operation accounts provide information about the assets and
liabilities relating to the joint operation as well as the contributions from the operators.
Hence, a statement of financial position is the joint operation's main financial statement.

Advance Accounting
B. Accounting for Joint Operations - Partnership in Nature Separate records

A full set of separate accounting records may be kept for the joint venture so that the
venturers can assess the performance of the venture (e.g. through regular management
accounts). Where the venture has a full set of accounting records, the transactions are
recorded in exactly the same way as for an ordinary business. A separate income
statement can be extracted from which each venturer will be credited or debited with his
agreed share of the profit or loss. The venturers, may maintain separate records for
transactions affecting them through Investment in Joint Venture account. The account is
opened in the individual books of venturers and used as follows:
Debited for:
Original and additional investment
Services rendered to the venture or a compensatory basis
Share in joint venture profits
Credited for:
Capital withdrawals from joint venture
Share in joint venture losses
Cash settlement
In theory it is possible for a jointly controlled operations to have a full set of records, but
this is rare in practice.
II. No separate records

Often (and certainly in examination questions), due to the short life time or size of the joint
venture, it is not considered worthwhile opening a new set of records for what may only be
a few transactions. In this case each venturer will record transactions on behalf of the
venture in his own records, alongside his other business dealings.
An account called Joint Venture is maintained to take the place of all nominal accounts.
The following transactions that affect the account would be as follows:
Joint Venture
Merchandise contribution Merchandise withdrawals
Purchases Merchandise returns
Freight-in Purchase returns and
allowances
Sales returns and all. Purchase discounts
Sales discounts Sates
Expenses Other income
If Joint Venture is completed, the balance of the Joint Venture account represents the profit
or loss. Credit balance represents profit and a debit balance represents loss.
Business Combination - Lecture Page 4

Joint Arrangement
If Joint Venture is uncompleted, meaning there are still unsold merchandise, profit or loss
is a balancing figure between the balance of the Joint Venture account before profit
distribution and the cost of the unsold merchandise (the required debit balance of the Joint
Venture account after profit or loss distribution.)
III. Cash Settlement
Cash settlement may also be represented by the venturer's account balance after recording
investments, withdrawals, and share in venture gain. A debit balance represents cash to be
paid in final settlement while a credit balance represents cash to be received. The recording
of cash settlement on the books of each venturer requires that:
1. All accounts, except personal accounts, be brought to zero balance and
2. Any unaccounted debit or credit is cash to be received or paid
To make cash settlement to venturers upon termination of a completed venture. Cash
settlement to a venturer may be computed as follows:
Investments Pxx
Add: Share in venture gain xx
Total Pxx
Less: Withdrawals xx
Cash settlement Pxx
C. Joint Ventures
A joint venturer recognizes its interest in a joint venture as an investment and shall account
for that investment using the equity method in accordance with PAS 28 Investments in
Associates and Joint Ventures unless the entity is exempted from applying the equity
method as specified in that standard.
A party that participates in, but does not have joint control of, a joint venture accounts for its
interest in the arrangement in accordance with PFRS 9 Financial Instruments unless it has
significant influence over the joint venture, in which case it accounts for it in accordance with
PAS 28 (as amended in 2011).

Advance Accounting
MCQ - Theory
1. It is the contractually agreed sharing of control over an economic activity, and exists only when
the strategic financial and operating decisions relating to the activity require the unanimous
consent of the parties sharing control.
a. Control c. significant influence
b. Joint control d. Controlling interest Punzalan 2014
2. Joint ventures can take many forms and structures. Joint ventures may be created as
partnership, as corporations, or as unincorporated associations. All of the following are the
distinct types of joint venture, except
a. Jointly controlled interests. c. Jointly controlled operations.
b. Jointly controlled entities. d. Jointly controlled assets Punzalan 2014
.
3. It is a form of joint venture, where each venturer should recognize in its separate financial
statements all assets of the venture that it controls, all liabilities that is incurs, all expenses that
it incurs, and its share of any revenues produced by the venture.
a. Jointly controlled interests. c. Jointly controlled operations.
b. Jointly controlled entities. d. Jointly controlled assets Punzalan 2014
4. It is a party to a joint venture and does not have joint control over that joint venture.
a. Venturer.
b. Investor in a joint venture.
c. Investor with a power to govern the financial and operating policies.
d. None of these. Punzalan 2014
5. Under proportionate consolidation, the minority interest in the venture is

a. Shown as deduction from the net assets.
b. Shown in the equity of the venture.
c. Shown as part of long-term liabilities of the venture.
d. Not included in the financial statements of the venture. Punzalan 2014
Joint Arrangement – MCQ Theory Page 6

Joint Arrangement
6. Which of the following statements about PAS 31, Interests in joint ventures is incorrect?
a. PAS 31 requires proportionate consolidation or the equity method to be applied when an
interest in a joint venture is acquired and held with a view to its disposal within 12
months of acquisition.
b. PAS 31 does not apply to investments that would otherwise be interests of venturers in
jointly controlled entities held by venture capital organization, mutual funds, unit’s trusts
and similar entities when those investments are classified as held for trading.
c. PAS 31 provides exemption from application of proportionate consolidation or the equity
method similar to those provided for certain parents not to prepare consolidated financial
statements.
d. PAS 31 provides that joint control must be lost before proportionate consolidation or the
equity method ceases to apply. Punzalan 2014
7. Which of the following methods of accounting for its share of each of the joint venture's assets
and liabilities are available to a venturer in a jointly controlled entity?
1. The equity method.
2. Proportionate consolidation, combining its share of each with similar items it controls.
3. Proportionate consolidation, showing separate line items for its share of each.
a. Methods 2 and 3 only c. Methods 1 and 2 only
b. Methods 1 and 3 only d. Methods 1,2, and 3 Punzalan 2014
8. The Flame Co. and the Tall Co. owns 60% and 40%, respectively of the equity of the Loop Co.
Flame and Tall have signed an agreement whereby all the strategic decisions in respect of
Loop are to be taken with the agreement of them both. Are the following statements TRUE or
FALSE, according to IAS 27, Consolidated and Separate Financial Statements, IAS 28,
Investment in Associates and IAS 31, Interest in Joint Ventures?
1. Flame should classify its investment in Loop as an investment in a subsidiary.
2. Tall should classify its investment in Loop as an investment in an associate.
Statement 1 Statement 2
a. False False
b. False True
c. True False
d. True True Punzalan 2014
Joint Arrangement - MCQ Theory Page 7

Advance Accounting
9. Are the following statements in respect of the conditions for joint venture TRUE or FALSE,
according to IAS 31, Interest in Joint Ventures?
1. The venturers must have a contractual arrangement as to how strategic decisions in
respect of a joint venture are to be made
2. Majority voting is acceptable for strategic decisions in respect of a joint venture.
a. False False
b. False True
c. True False
10. The Wind Co. has correctly classified its investment in Air Co. as an investment in a joint
venmre. Wind's statement of financial position shows debt of P500,000; Air's statement of
financial position shows debt of P700,000. Are the following statements TRUE or FALSE,
according to IAS 31, Interest in Joint Ventures?
1. Retained earnings in Wind's consolidated statement of financial position will be the
same, whether Wind uses proportionate consolidation or the equity method to account
for its interest in Air.
2. Debt in Wind's consolidated statement of financial position will be the same, whether
Wind uses proportionate consolidation or the equity method to account its interest in Air.
a. False False
b. False True
c. True False

Joint Arrangement
MCQ – Problems
JOINT ARRANGEMENT
Investment Account
11. On January 1, 2013, Wilkins, Inc. and Xylo, Inc. (the parties) agreed to combine their
businesses by establishing a separate vehicle (Bremm, Inc.). Both parties expect the
arrangement to benefit them in different ways. Wilkins believes that the arrangement could
enable it to achieve its strategic plans to increase its size, offering an opportunity to exploit its
full potential for organic growth through an enlarged offering of products and services. Xylo
expects the arrangement to reinforce its business opportunities by marketing more products.
As a result, Wilkins, Inc. acquired 207o of the outstanding common stock of Bremm, Inc. for
P700,000. This investment gave Wilkins the joint control over Bremm. Bremm's assets on that
date were recorded at P3,900,000 with liabilities of P900,000. Any excess of cost over book
value of the investment was attributed to patent having a remaining useful life of 10 years.
In 2013, Bremm reported net income of P170,000. In 2014, Bremm reported net income of
P210,000. Dividends of P70,000 were paid in each of these two years. What is the equity
method balance of Wilkin's Investment in Bremm, Inc. at December 31,2014?
a. P728,000 c. P756,000
b. P748,000 d. P776,000 Dayag 2013
12. On January 1, 2013, two real estate companies (the parties - Packet Company and Socket
Company) set up a separate vehicle (Harrison Company) 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 in Harrison Company. The main feature of
Harrison's legal form is that the 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.
As a result, Packet Company paid P1.6 million for 50,000 shares of Harrison's voting
common stock, which represents a 40% investment. No allocation to goodwill or other
specific account was made. The joint control over Harrison is achieved by this acquisition
and so Packet applies the equity method. Harrison distributed a dividend of P2 per share
during the year and reported net income of P560,000.
What is the balance in the Investment in Harrison account found in Packet's financial
records as of December 31,2013?
a. P1,724,000 c. P1,844,000
b. P1,784,000 d. P1,884,000 Dayag 2013
ANSWER KEY Page 9

Advance Accounting
13. January 1, 2013 entities X and Y each acquired 30 per cent 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 venturer's investment in entity 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 per cent 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 c. P419,000
b. P369,000 d. P375,000 Guerrero 2013
14. On January 1, 2013 entities M and N each acquired 30 per cent of the ordinary shares that
carry voting rights at a general meeting of shareholders of entity 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 of P400,000. On December
30,2013 entity Z declared and paid a dividend of PI 50,000 for the year 2013. At December
31,2013 the fair value of each venturers' investment in entity Z is P425,000. However, there is
no published price quotation for entity Z.
On December 31,2013 entity M sells goods for P60,000 to entity Z. At December 31,2013 this
goods were in the investories of Equity Z (ie they had not been sold by entity Z). Entity M sells
goods at a 50 per cent 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 c. P363,000
b. P375,000 d. P300,000 Guerrero 2013

Joint Arrangement
15. 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 per cent 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 of 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. P 90,000 c. P105,000
b. P121,000 d. P106,000 Guerrero 2013
16. On March 1,2013 entities A and B each acquired 30 per cent 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 c. P288,000
b. P290,000 d. P260,000 Guerrero 2013
Trade Receivable
17 The PLDT Group comprises the Smart Co. and its 75% owned subsidiary, Ka-
Talk Co. The PLDT Group also owns one-third of the equity of the Ka-Text Co. and has signed
a contract with other equity holders in Ka-Text Co., whereby all strategic financial and operating
decisions in respect of Text n Text require the unanimous consent of all shareholders.
The PLDT uses proportionate consolidation to account for jointly controlled entities. 1 he
carrying amounts of trade receivables in the separate financial statements of these companies
at December 31, 2008 are:
PLDT Co. 800,000
Ka-Talk Co. 500,000
Ka-Text Co. 300,000
ANSWER KEY Page 11

Advance Accounting
In accordance with IAS 27, Consolidated and Separate Financial Statements, and IAS 31,
Interest in Joint Ventures, what carrying amount of trade receivables should be presented in
the consolidated financial statements of PLDT Co.?
a. 1,275,000 c. 1,400,000
b. 1,300,000 d. 1,600,000 Punzalan 2014
Cost of Unsold Merchandise charge to venturer

18. DD, EE and FF formed a joint arrangement in 2013 and agreed to divide profits and losses
equally. The arrangement is terminated on December 31, 2014 even though there are still
unsold merchandise. On this date DD's trial balance contains the following account balances
before profit or loss distribution:
Debit Credit
J V cash P30,000
Joint operation 6,000
EE, capital 14,000
FF, capital P16,000
DD receives P4,500 for his share in the joint operations profit. Furthermore, he agrees to be
charged for the unsold merchandise as of December 31, 2014.
The cost of the unsold merchandise charged to DD is:
a. 3,000 c. 13,500
b. 15,000 d. 19,500 Dayag 2013
Venture Profit(Loss)
19. Pinoy and Big Brother formed a joint venture to sell second hand home appliances by investing
sufficient cash. They agreed to share profits and losses equally. They agreed to operate for a
period of one year, each will record his purchases, sales, and expenses in his own books. After
almost six months of operations, the following incomplete information was made available:
Pinoy Big Brother
Joint venture account (Cr.) 60,000 120,000
Expenses paid 5,000 10,000
Unsold merchandise on hand 15,000 35,000
How much is joint venture profit?
a. 230,000 c. 165,000
b. 195,000 d. 130,000 Punzalan 2014

Joint Arrangement
20. X is the manager of the joint venture of X, Y, and Z, which they decided to liquidate. Before
dissolution and liquidation, the following accounts appear in the books ofX:
Debit Credit
Joint venture 5,000
Participant Y 12,000
Participant Z 4,000
All the remaining merchandise and supplies of the joint venture were bought and paid by X
for P11,000. The resulting profits or losses were shared equally by the participants. What
were the joint venture's profits (losses)?
a. (5,000) c. (6,000)
b. 11,000 d. 6,000 Punzalan 2014
Net Income
21. OO, PP, and QQ formed joint operations to bankroll a series of cultural shows for the
Philippine Centennial celebration. OO and PP agreed to contribute cash and QQ was to
manage the affairs of the joint venture. QQ was to receive a bonus of 25% of the net income
after bonus, OO and PP were to be allowed interest on their capital contributions at 6% per
annum, and any remainder was to be divided equally among the three partners. After a year,
the joint operations was terminated and the following information was provided: original
capital contributions used to purchase tickets, were P1,815,000 and P2,475,000,
respectively, from OO and PP; QQ sold tickets worth a total of P6,600,000; and, QQ paid
expenses of P1,899,150 out of joint operations funds. How much was the joint operations net
income after the bonus to QQ?
a. 257,400 c. 410,850
b. 328,680 d. 4,700,850 Dayag 2013
Share in Net Income
22. RR and SS are asked by the ABC to handle the marketing of a benefit basketball game.
Being avid fans, they readily accepted the offer and formed joint operations. To achieve an
equitable distribution of earnings, they agreed that the partner who finances the purchase of
tickets shall be entitled to a 20% commission, the partner who makes ticket sales shall be
entitled to a 25% commission, and any remainder was to be divided equally. After the game
was over, the following information was obtained: RR purchased tickets worth P26J25; SS,
advanced P4.125 for expenses; and, ticket sales made by RR and SS, respectively, were
P22,000 and P16,500. How much was SS's share in the net income (loss) of the joint
operations?
a. 825 c. (3,300)
b. 4,125 d. (7,425) Dayag 2013
ANSWER KEY Page 13

Advance Accounting
Unrealized Gross Profit

23. Panner, Inc. owns 30 percent of Watkins and applies the equity method.
During the current year, Panner buys inventory costing P54,000 and then sells its Watkins for
P90,000. At the end of the year, Watkins still holds only P20,000 of merchandise. What
amount of unrealized gross profit must Panner defer in reporting this investment using the
equity method?
a. 2,400 c. P 8,000
b. P4,800 d. P10,800 Dayag 2013
Final Settlement
24. The joint operations accounts in the tooks of the joint operator, X, Y and Z, show the
balances below, upon termination of the joint operations and distribution of the profits:
Accounts X Y 1
with Dr(Cr) Dr(Cr) Dr(Cr)
X - P2,500 P2,500
Y P4,000 - 4,000
Z (6,500) (6,500)
Final settlement of the joint operations will require payments as follows:
a. X pays P2,500 to Z, and Y pays P4,000 to Z.
b. Z pays P2,500 to X, and P4,000 to Y.
c. Y pays P6,500 to X, and Z pays P2,500 to Y.
d. No payment(s) to be made Dayag 2013
25. X, Y and Z agree to sell yellow t-shirts and visors on February 24 and 25, X constructed a
stand in front of Z's house at a cost of P200 chargeable to operations. Any profit from the joint
operations will be distributed first by the payment of P50 to Z to cover the cost of cleaning his
lot after the joint operations, then by allowing a 40% commission on individual sales and,
finally, by dividing the remainder between X and Y in the ratio of 3:1. All purchases will be
out-of-pocket and all sales activities will be the responsibility of each individual.
On February 24, X purchased merchandise worth P5,000 using P1,000 handed to him
by Y and P4,000 of his own money. Z paid P100 for a permit to operate the concession.
X, Y and Z made sales at a mark-up of 100% on cost, as follows: X - P3,400; Y
- P5,200; and, Z – P1,200, Z paid P180 for their personal meals, which is to be shared
equally by all of them.
On February 26, Z agreed to pay P100 for the stand. The balance of the inventory was
taken by X at 50% of cost, as agreed to by Y and Z.
The final cash settlement would be: Dayag 2013
X Y I X Y I
a. P5,340 (P4,260) (P1,080) c. P1,870 (P2,250) (P670)
b. P2,560 (P2.010) (P 550) d. P1,930 (P2,400) (P470)

Joint Arrangement
26. V, I and P form a joint operation for the sale of merchandise. P are to contribute the
merchandise, while V is to act as the managing joint operator and I to be allowed a bonus of
25% of the profit after deduction of the bonus as expense. I and P are to be allowed 6%
interest a year on their original investments. The balance of the profit on the arrangement is
to be divided equally among the three joint operators.
On July 1, 2013,1 and P contributed merchandise of P06.OOO and P90.0QD,
respectively. For the period between July 1 and October 1, V sold joint operation's
merchandise on account for P240,000, of which he collected P229,500, allowed sales
discounts of P4,050, and wrote off P6,450 as uncollectible. V paid joint operations
expenses of P58.560 from the joint operations cash. On October 1, the joint operations
was terminated and unsold merchandise was returned at the following values: to I.
P15,000, and to P, P11,400. Cash settlement was completed by V on the same day.
The cash settlement received by I and P, respectively, are Dayag 2013
a. 62,234.00 and P90,194.00 c. 72,333.33 and 92,166.67
b. 62,666.67and P90.333.33 d. 73,468.00and 101,788.00
27. The books of three joint operators contain the following account balances.
N's Books O's Books P's Books

Account with N P2,000 Cr P2,000 Cr
Account with O P3,000 Cr 3,000 Cr
Account with P 5,000 Dr 5,000 Dr
When P makes final settlement of the arrangements, the entries are: Dayag 2013
N's Books O's Books P's Books
a. Debit... P P5,000 N P5.000 Cash .... P5,000
Credit.. 0 3,000 P 2,000 N 2,000
Cash 2,000 Cash 3,000 0 3,000
b. Debit... Cash ........................ P3,000 Cash . P2,000 N P3.000
0 2,000 N 3,000 0 2,000
Credit.. P 5,000 P 5,000 Cash .. 5,000
c. Debit... P P5,000 N P5,000 Cash . P5,000
Credit.. Cash ....................... 3,000 P 3,000 N 3,000
0 2,000 Cash ..... 2,000 0 2,000
d. Debit... Cash ...................... P2,000 N P2,000 N P2,000
0 3,000 Cash 3,000 0 3,000
Credit.. P 5,000 P 5,000 Cash .. 5,000
ANSWER KEY Page 15

Advance Accounting
28. LL, MM and NN formed a joint arrangement to purchase a piece of lot and to erect an
apartment building for sale. LL is to manage the joint arrangement hence, he will receive a
bonus of 10% of the joint operation's gain before deducting the bonus as an expense. Any
remaining gain or loss is to be divided equally among the joint operators. The venture is
completed on August 31,2013. On this date, the accounts of MM and NN show the following
balances:
Books of
MM NN
Account with LL P16,000 Cr. P16,000 Cr.
Account with MM 32,000 Cr.
Account with NN 18,000 Dr.
There are unused construction supplies which LL agreed to take over at its cost of P42,000.
Final settlement with the arrangement will require payments as follows:
a. LL pays NN P11,200, and MM pays NN P14,000.
b. LLpays NN P25,600,and MM P14,4O0.
c. LL pays MM P14,400, and NN pays LL P30,800.
d. LL pays MM P35,600, and NN pays LL P14,400. Dayag 2013
29. Reyes, Silva and Tan formed a joint arrangement. Reyes was designated as the managing
joint operator and was to record the joint operation's transactions in his own books. As
manager, Reyes was to be allowed a salary of P12,000; the remaining profit or loss was to be
divided equally.
The following balances appeared at the end of 2013, before adjustment for joint operations
inventory and profit:
Debit Credit
Joint operations cash P48.000 P
Joint operations - 15,000
Silva, capital 1,000
Tan, capital 27,000
The arrangement was terminated on December 31, 2013 and unsold merchandise costing
P10,500 were taken over by Tan. Reyes made cash settlement with Silva and Tan.
In the final cash settlement, how much did Tan receive?
a. 31,500 c. 21,000
b. 27,000 d. 10,500 Dayag 2013

Joint Arrangement
Capitalizing on alleged inside information, Dupe and Fluke formed a partnership venture to'
purchase, sells or otherwise trade-in Bre-X mining shares. Bre-X recently made a significant finding
of gold deposits in its property in Busang, Indonesia. They started cautiously by making an initial but
modest cash contribution of P137,500,000 each. They agree to divide earnings equally and further
agreed to settle and close the partnership venture after six months of furious but ferocious (insider)
trading. Below is a synopsis of the transactions for six months:
Purchases of shares:
By Dupe 1,237,500,000
By Fluke 495,000,000
Sales of shares:
By Dupe 1,339,250,000
By Fluke 462,000,000
Interest charges:
By Dupe 2,200,000
By Fluke 1,375,000
Dividend Income:
By Dupe 1,100,000
By Fluke 2,750,000
30. How much will Fluke receive (or pay) in final settlement of the partnership venture?
a. (34,512,500) c. (31,625,000)
b. 2,887,500 d. 66,137,500 Punzalan 2014
Comprehensive
Questions 1 & 2 are based on the following: Dayag 2013
31. Ace Company purchases 40% of Basket Company on January 1 for P500,000 that carry
voting rights at a general meeting of shareholders of Basket Company. Ace Company and
Blake Company immediately agreed to share control (wherein unanimous consent is needed
to all the parties involved) over Basket Company. Basket reports assets on that date of
P1,400,000 with liabilities of P500,000. One building with a seven-year life is undervalued on
Basket's books by P140,000. Also Basket's book value for its trademark (10-year life) is
undervalued by P210,000. During the year. Basket reports net income of P90,000, while
paying dividends of P30,000. What is the Investment in Basket Company balance (equity
method) in Ace's financial records as of December 31?
a. P504,O00 c. P513,900
b. P507,600 d. P516,000
ANSWER KEY Page 17

Advance Accounting
32. Using the same information in No. 31, the Income from Investment in Basket
Company in Ace's financial records as of December 31 ?
a. P36,000 c. P12,000
b. P19,600 d. P7,600
Questions 1 thru 4 are based on the following: Dayag 2013

33. Goldman Company reports net income of P140,000 each year and pays an annual cash
dividend of P50.000. The company holds net assets of P1,200,000 on January 1,2013. On
that date, Wallace Company purchases
40 percent of the outstanding stock for P600,000, which gives it the ability to have joint
control with Zimmerman Company over Goldman. At the purchase date, the excess of
Wallace's cost over its proportionate share of Goldman's book value was assigned to
goodwill. On December 31, 2015, what is the investment in Goldman Company balance
(equity method) in Wallace's financial records?
a. P600,000 c. P690,000
b. P660,0OO d. P708,000
34. Using the same information in No. 33, except that Goldman Company's ownership structure
is as follows:
75% is needed to direct relevant activities;
50% ownership of Wallace Company;
30% ownership of Zimmerman Company; and
20% ownership of American Company
What is the amount of Income from the Income from Investment in Goldman's Company in
Wallace financial records as of December 31?
a. P168,000 c. P60,000
b. P108,000 d. P56,000
is as follows:
75% is needed to direct relevant activities;
50% ownership of Wallace Company;
25% ownership of Zimmerman Company; and
25% ownership of American Company
Wallace financial records as of December 31?
a. P168,000 c. P 60,000
b. P108,000 d. P56,00O

Joint Arrangement
is as follows:
Majority vote to direct relevant activities; 35% ownership of
Wallace Company; 35% ownership of Zimmerman Company;
Not applicable - ownership of American Company; and Widely
dispersed - other companies
Wallace financial records as of December 31 ?
a. P168,000 c. P60,000
b. P108,000 d. P56,000
Items 37 through 38 are based on the following information: Dayag 2013

37. On September 30, 2011 Roxas, Silverio and Tan agreed on a joint operations to sell their
common stock shares of the Golden Copper Mines. Gains and losses are to be shared in
proportion to the contributed shares.
Roxas contributes 6,000 shares, which had cost him P42 a share; Silverio gave 10,000
shares which had cost P58 each and Tan 4,000 shares which had cost P62 per share.
The par value of the shares was P50 and when the arrangement began market value was
P40 a share.
On October 20 he sold 4,500 shares for P44 a share and P3,000 expenses incurred. On
November 1, Golden Copper distributed a stock dividend of 20%. Tan sold 5,000 shares,
ex-stock dividend, on November 5 for P25 a share. On November 15, Golden Copper
paid a cash dividend of PI per share. On November 22, he sold 6,000 shares for P28. On
December 20, the remainder of the shares were sold for P35 a share. Tan's expenses
were P4,700.
The 20,000 shares contributed to the arrangement should be valued at:
a. 800,000 c. 1,080,000
b. 1,000,000 d. 1,200,000
38. Assuming the arrangement is ended on December 31, the share of Roxas in the loss of the
arrangement would be:
a. P10.130 c. P13.130
b. 11,130 d. 12,130
39. If a distribution of proceeds is made on December 31. The share of Silverio would amount to:
a. P374,650 c. P381,450
b. 378,500 d. 385,300
ANSWER KEY Page 19

Advance Accounting
40. Tan's loss on the disposition on his Investment in Golden Copper is:
a. 95,420 c. 105,420
b. 95,140 d. 120,140

41. Bar and Car join in an arrangement for the sale of football souvenirs at the Rose Bowl game.
Partners agree to the following: (1) Bar shall be allowed a commission of 20% on net
purchases made by him, (2) each member shall be allowed a commission of 25% on his own
sales, (3) any remaining profit shall be shared equally, Joint operation transactions follow:
Bar Car
Cash purchases P950
Expenses paid - 150
Sales (each keeps his receipts) 800 600
The joint operation profit (loss) is:
a. P450 c. P(300)
b. 300 d. (450)
42. Using the same information in No. 41, the amount due to (from) joint operators:
a. Bar, P415; Car, P(415) c. Bar, P645; Car, P645
b. Bar, P420; Car, P(420) d. Bar, P-0-; Car, P-0-

43. Joint operation activities for M, N, and O having proved to be unprofitable, the parties agree
to dissolve the arrangements. Accounts with the arrangements and joint operators on the
books of M, the managing partner, are as follows just before dissolution and liquidation:
Debit Credit
Joint Operation Cash P12,000
Joint Operation 6,500
N, Capital* P14,500
O, Capital 6,500
The balance of joint operation assets on hand is sold by M for P3,500. M is allowed special
compensation of P300 for winding up the arrangements; remaining profits or loss is
distributed equally.
The Joint Operations profit (loss) is:
a. 3,000 c. (3,000)
b. 10,000 d. Zero

Joint Arrangement
44. Using the same information in No. 43, N and O received in final settlement:
a. N, P13,400; O,P5,400 c. N, P15,850; O,P7,850
b. N, P10,500; O,P3,500 d. None
45. McKee and Nelson enter into a contract to speculate on the stock market, each using
approximately their personal cash. The earnings are to be divided equally, and settlement is
to be made at the end of the year after all securities have been sold. A summary of the
monthly brokerage statements for the year follows:
McKee Nelson
Total of all purchase confirmations P45,000 P18,000
Total of all sales confirmations 48,700 16,800
Interest charged on margin accounts. 80 50
Dividends credited to accounts 40 100
a. 2,510 c. (3,370)
b. 2,640 d. None
46. Using the same information in No. 45, final settlement will require payments as follows:
a. McKee pays Nelson P2,405.
b. McKee and Nelson receive P1,255 each.
c. McKee receives from Nelson P1,150.
d. None.
47. Al Benin and Rey Sucat formed a joint operation on January 1,2013 to operate two stores to
be managed by each joint operator. They agreed to contribute cash as follows: Benin,
P30,000; Sucat, P20,000.
Profits and losses are to be divided in the capital ratio. All the arrangements transactions are
for cash, and the cash receipts and disbursements of the arrangements during the four-month
period, handled through the joint operator bank accounts, are as follows:
Benin Sucat
Receipts P78,920 P65,425
Disbursements 62,275 70,695
On April 30, 2013, the remaining joint operation non-cash assets in the hands of the joint
operators were sold for P 60,000 cash. The joint operations were terminated and
settlement was made between Benin and Sucat. The arrangement profit (loss) for the four-
month period, after selling the remaining non-cash assets, was:
a. 11,375 c. (31,375)
b. 21,375 d. (38,625)
ANSWER KEY Page 21

Advance Accounting
48. Using the same information in No. 47, the P60,000 cash was divided between the join
operators in the following manner:
a. Benin, P16,180; Sucat, P43.820
b. Benin, P21,905; Sucat, P38,095
c. Benin, P26,180; Sucat, P33,820
d. Benin, P48,095; Sucat, P11,905

49. Ramos, Silva and Torre formed a joint operation.' Ramos is to act as managing joint operator
and is designated to record the joint operation accounts in his books. As manager, he is
allowed a salary of P12,000. Remaining profit (loss) is to be divided equally.
The following balances appear at the end of 2013 before adjustments for joint operation's
inventory and profits.
Debit Credit
Joint operations cash P48,000
Silva, capital 3,000
Torre, capital P27,000
The arrangements is to terminate on December 31, 2013 with unsold merchandise costing
P10,400.
Assuming that the joint operations profit is P5,000, what is the balance of the Joint
Operation's account before the distribution of profit?
a. 6,400 (Credit) c. 19,000 (Debit)
b. 5,400 {Debit) d. 15,400 (Debit)
50. Using the same information in No. 49 and assuming that the joint operations incurs a loss of
P1,000, what is the balance of the joint operation's account before the distribution of loss?
a. 9,400 (Debit) c. 11,400 (Debit)
b. 9,400 (Credit) d. 11,400 (Credit)

51. Alas and Bernal are joint operators in a joint arrangements for the acquisition of construction
supplies at'an auction. The two joint operators agreed to contribute cash of P20,000 each to
be used in purchasing the supplies, and to share profits and losses equally, they also agreed
that each shall record his purchases, sales and expenses in his own books.
Several months later, the two joint operators terminated the arrangement.

Joint Arrangement
The following data relate to the venture activities:

Alas Bernal
Joint operation P16,000 Cr. P1400 Cr.
Value of inventory taken 600 2,200
Expenses paid from JV cash 800 1,800
The amount of joint operations sales is:
a. 77,000 c. 34,400
b. 27,000 d. None
52. Using the same information in No. 51 Alas would receive in the final settlement:
a. 2,000 c. 4,000
b. 18,600 d. 38,000

53. On July 1,2013, Alviar, Brosas and Camus formed a joint arrangement for the sale of
merchandise. Alviar was designated as the managing joint operator. Profits or losses are to
be divided as follows: Alviar, 50%; Brosas; 25%; and Camus, 25%. On October 1, 2013,
though the joint operation is still uncompleted, the participants agreed to recognize profit or
loss on the venture to date. The cost of inventory on hand is determined at P25,000. The
Investment in Joint Operation account has a debit balance of P15,000 before distribution of
profit and loss, no separate set of books is maintained for the joint operation and the
participants record in their individual books all venture transactions.
The joint operation profit (loss) on October 1, 2013 is:
a. 10,000 c. (15,000)
b. 25,000 d. None
54. Using the same information in No. 53 and the joint operation accounts has a credit balance of
P30,000, the joint operations profit (loss) is:
a. (55,000) c. (5,000)
b. 55,000 d. 5,000

55. Ranto and Santo formed a joint arrangement to acquire and sell a special type of
merchandise Ranto is to manage the joint arragement and to furnish the capital. The joint
operations are to share equally any gain or loss on the joint operations. On April 1, 2013,
Santo sent Ranto P10,000 cash, which was all used to purchase merchandise. Ranto paid
freight of P240 on the merchandise purchased. On April 27, one half of the merchandise was
sold for P7,200 cash. Ranto paid the cost of delivering merchandise to customers which
amounted to P260. No further transactions occurred until the end of the month.
ANSWER KEY Page 23

Advance Accounting
The profit (loss) of the joint arrangement for the month of April, 2013 is:
a. P1,820 c. P( 1,700)
b. 1,950 d. None
56. Using the same information in No. 55, the account of Santo in the books of Ranto shows a
debit (credit) balance on April 30, 2013 after recognizing the profit (loss) on the uncompleted
joint arrangement:
a. P(10,910) c. P10,850
b. 10,975 d. Zero

57 MM and RR agreed on joint operations to purchase and sell car accessories.
They agreed to contributed P25,000 each to be used in purchasing the merchandise, share
equally in any gain or loss, and record their joint operations transactions in their individual
books. After one year, they decided to terminate the arrangement, and data from their records
were:
Joint operations account credit balances: in books of MM, P18,000; in books of RR, P20,200,
Cost of car accessories taken: by MM, P1,000; by RR, P1,800, Expenses paid: by MM,
P1,850; by RR, P2,600.
How much was the joint operations sales?
a. 83,750 c. 91.000
b. 86,550 d. 92,650
58. Using the same information in No. 57, compute the joint operations gain?
a. P38,200 c. P42,750
b. 41,000 d. 45,550

59. The following joint operations account reflects the transactions of the arrangements of A, B
and C as recorded by each Venturer (participant).
Investment in Joint Operation
2004
Nov. 5 Merchandise-C P 12,750 Nov. 18 Cash sales-A P30,600
17 Merchandise-B 10,500 Dec. 12 Cash sales-A 6,300
22 Freight-in-A 525 28 Merchandise-B .. 1,815
Dec. 3 Purchase-A 5,250
13 Selling expenses - A. 600
Distributions of gains or losses are to be trade as follows: A - 50%; B - 30%; and
C - 20%. The joint operations is to close on December 31, 2013:

Joint Arrangement
The joint operation profit (loss) is;

a. 7,275 c 25,980
b. 9,090 d. 29,625
60. Using the same information in No.59, how much of each joint operations receive in the final
settlement?
a. A - none B-P11,412; C-P14,568.
b. A-P4.545 B-P11,212; C-P10,932.
c. A-P5,070 B-P11,212; C-P10,932.
d. A-P4,545 B-P11,412; C-P14,568.

61. JJ, DD and AA formed a joint operation for the sale of assorted fruits during the Christmas
season. Their transactions during the two-month period are summarized below.
Investment in Joint Operation
2004 2004
Nov. 6 Merchandise - JJ P8,500 Nov.10 Cash sales-AA P20,400
8 Merchandise - DD 7,000 12 Cash sales - AA 4,200
10 Freight-in - AA 200 28 Merchandise - DD ... 1,210
Dec. 8 Purchases - AA 3,500 Dec.30 Unsold merchandise
14 Selling expenses - AA .. 550 charged to JJ 540
The joint arrangements provided for the division of gains and losses among JJ, DD and
AA in the ratio of 2:3:5. The joint operation is to close on December 31, 2013.
a. 6,600 c. 6,060
b. (6,600) d. (6,060)
62. Using the same information in No. 61, how much would JJ receive cash in final settlement?
a. 9,712 c. 1.212
b. 8,500 d. 9,280
Questions 1 thru 3 are based on the following: Dayag 2013

63. Anson and Baylon formed a joint arrangement. Their capital contributions, and profit and loss
ratio are presented below:
Contributions Profit and

Cash Merchandise Loss Ratio
Anson P5,000 P8,000 50%
Baylon 6,000 50%
ANSWER KEY Page 25

Advance Accounting
A summary of the joint operations activities is presented below:

Purchases of merchandise by Baylon P4,000
Expenses paid by Baylon:
Mayor's permit 400
Freight on merchandise contributed by Anson 300
Delivery expense of merchandise sold 200
Sales (all of the merchandise contributed and purchased by Baylon and
one-half of those contributed by Anson) - Selling price 14,000
The balance of the joint operations account before profit or loss distribution is:
a. 4,900 c. 14,400
b. 14,000 d. None
64. Using the same information in No. 63, the profit (loss) of the joint operations is:
a. (450) c. (750)
b. 750 d. 450
65. Using the same information in No. 63, how much would Anson receive in the final settlement
assuming he took the unsold merchandise at cost?
a. 13,000 c. 8,475
b. 12,625 d. 8,515
Questions 1 & 2 are based on the following: Punzalan 2014
K and L join in a venture for the sale of certain merchandise. The participants agree to the following:
• K shall be allowed a commission of 10% on his net purchase.
• The participants shall be allowed commissions of 25% on their respective sales.
• K and L shall divide the profit or loss 60% and 40%, respectively.
Joint venture transactions follows:
Dec. 1 K makes cash purchase of P57,000
3 L pays venture expenses of P9,000.
5 Sales are as follows: K- P48,000; L- P36,000. The participants keep their own
cash receipts.
6 K returns unsold merchandise and receives P15,000 cash.
15 The participants make cash settlement.
66. In the distribution of the net profit of the venture, what are the shares of K and L,
respectively?
a. 4,260 3,230
b. 4,680 3,120
c. 4,820 3,430
d. 4,840 4,230

Joint Arrangement
67. In the final settlement, what amount would L pay K?

a. 14,100 c. 14,890
b. 14,880 d. 15,100
Questions 1 thru 3 are based on the following: Punzalan 2014

Mac and Jolly, in a joint venture, contributed P150,000 each in order to purchase canned goods
which are sold by lots at a "closing-out" sale. They agreed to divide their profits equally and each
shall record his purchases, sales, and expenses in his own books. After selling almost all of the
canned goods, they wind up their venture. The following data relate to the venture transactions:
• Joint venture credit balance of Mac was P120,000, and Jolly was P105,000.
• Expenses paid from the joint venture cash was P15,000 by Mac and P19,500 by Jolly.
• Cost of unsold canned goods, which Mac and Jolly agreed to assume were P4,500 and
P7,000, respectively.
68. What was the total sales of the joint venture?
a. 559,500 c. 525,000
b. 536,500 d. 334,500
69. What was the joint venture gain or loss?
a. 202,000 c. 224,000
b. 213,500 d. 236,500
70. In the final settlement, what was the total amount due to Mac including his investment?
a. 256,500 c. 263,750
b. 258,000 d. 268,250

Carlos and Horace join in a venture for the sale of handicraft souvenir at the PICPA Convention.
They agreed that Carlos shall be allowed a commission of 20% on his net purchases; that each
member shall be allowed a commission of 25% on his sales; and that any remaining profit shall be
shared in the respective ratio of 6:4. The venture's transactions follows: cash purchase of PI,900 and
sales of PI,600 were made by Carlos, and expenses of P300 and sales of PI,200 were made by
Horace. Each keeps his own sales receipts.
71. What is the joint venture profit (loss)?
a. 600 c. 700
b. (650) d. 900
72. How much is the amount due to (from) participants in the final settlement?
Carlos Horace
a. 415 (415)
b. 792 (792)
c. 860 (860)
d. 972 (972)
ANSWER KEY Page 27

Advance Accounting

Burgos and Casino are participants in a joint venture for the purchase through bidding and sales of
surplus auto parts from Clark Air Base. The winning bid price is P400,000 paid equally by Burgos
and Casino and constituting their investments in the joint venture. They agreed that each will record
his purchase, sales, and expenses in his own books and share profits and losses equally.
After seven months, the joint venture was terminated and the following data relate to the joint
venture:
Burgos Casino
Joint venture account (Cr.) 155,000 175,000
Expenses paid from joint venture cash 7,500 15,000
Cost of auto parts taken 5,500 18,000
73. How much is the joint venture sales revenue?
a. 752,500 c. 776,000
b. 330,000 d. 730,000
74. In the final settlement, how much will Burgos receive?
a. 378,750 c. 371,250
b. 384,250 d. 176,750

Mitra and Ramos agreed on a joint venture to purchase and sell car accessories. Their contract
stipulates that the participants shall contribute P25,000 each to be used in purchasing the
merchandise, share equally in any gain or loss, and record their venture transactions in their
individual books.
After one year, they decided to terminate the venture and the following data were taken from
their respective records:
• Joint venture credit account balances were P18,000 for Mitra and P20,200 for Ramos.
• Cost of car accessories taken by Mitra and Ramos were P1,000 and P1,800,
respectively.
• From the joint venture cash, expenses paid were P1,850 by Mitra and P2,600 by Ramos.
75. How much were the joint venture sales?
a. 83,750 c. 91,000
b. 86,550 d. 92,650
76. How much was the joint venture gain?
a. 38,200 c. 42,750
b. 41,000 d. 45,550

Joint Arrangement

V, I, and P form a joint venture for the sale of merchandise. I and P are to contribute the merchandise,
while V is to act as the manager and is to be allowed a bonus of 25% of the profit after deduction of
the bonus as expense. I and P are to allow 6% interest a year on their original investments. The
balance of the profit on the venture is to be divided equally among the three participants.
On July 1, 2010, I and P contributed merchandise of P66,000 and P90,000, respectively. For
the period between July 1 and October 1, V sold venture merchandise on account for P240,000,
of which he collected P229,500, allowed sales discounts of P4,050, and wrote of P6,450 as
uncollectible. V paid joint venture expenses of P58,650 from the venture cash.
On October 1, the joint venture was terminated and unsold merchandise was returned at the
following values: to I- P15,000, and to P- P11,400. Cash settlement was completed by V on
the same day.
77. What is the net profit of the joint venture after the bonus to V?
a. 31,200 c. 33,072
b. 33,000 d. 33,420
78. What would be the cash settlement received by I and P, respectively?
a. 62,210.00 90,170.00
b. 62,234.00 90,194.00
c. 72,333.33 92,166.67
d. 73,468.00 101,788.00

On October 1, 2010, A, B, and C entered into a joint venture business. They were to market a special
alarm device. The venture profits and losses were to be shared into 5:3:2 ratio, respectively. On
December 31, 2010 while the joint venture is still uncompleted, the three participants decided to
recognize the profits or losses for the three months period. The inventory is listed at 25% above cost
at P50,000. The joint venture account has a debit balance of P24,000. No separate books are
maintained for the joint venture.
79. What was the joint venture profits (losses) for the three months period?
a. 16,000 c. (24,000)
b. 26,000 d. 13,500
80. What were the shares of A, B, and C in the profits (losses)?
A B C
a. (12,000) (7,200) (4,800)
b. 8,000 4,800 3,200
c. 13,000 7,800 5,200
d. 6,750 4,050 2,700
Items 81 and 82 are based on the following data (Appendix Problem): Guerrero 2013
ANSWER KEY Page 29

Advance Accounting
On January 1,2013 entities A and B each acquired 30 per cent of the ordinary shares that carry
voting rights at a general meeting of shareholders of entity M for P100,000. The purchase price is
equal to the fair value of 30 per cent of entity M's identifiable assets less 30 per cent 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 of 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 ended December 31,2013 of P800,000. There is no published
price quotation for entity M. Investments are accounted for using the equity method.
81. At December 31, 2013 how much investment in entity M should be reported by each venturer?
a. P100,000 c. P 180,000
b. P-0- d. P40,000
82. At December 31,2013 each venturer must measure their investment in entity M at:
a. P160,000 c. P180,000
b. P100,000 d. P-0-
Number 16 and 17 are based on the following data (Appendix Problem): Guerrero 2013
On March 1,2013 entities A and B each acquired 30 per cent 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.
83. At December 31,2013 entities A and B must each report their investment in Entity AB at:
a. P290,000 c. P300,000
b. P293,000 d. P296,000
84. How much impairment loss should be recognized by each venturer?

a. P10,000 c. P13,000
b. P 3,000 d. P 7,000

Joint Arrangement
Questions 1 thru 4 are based on the following: Guerrero 2013

85. On January 1, 2013 entities A and B each acquired 30 per cent 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 30, 2013 entity X declared and paid a dividend of PI 50,000 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 c. P255,000
b. P345,000 d. P420,000
86. Using the same facts in No. 85, 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 venturer should recognize on December 31,2013?
a. P45,000 c. P75,000
b. P30,000 d. P15,000
Using the same facts in No. 85. However, there is a published price quotation for entity X.
87. How much income is to be recognized by each venturer in profit or loss for the year ended
December 31, 2013?
a. P165,000 c. P125,000
b. P170,000 d. P200,000
88. At December 31,2013 the venturers must each report its investment in entity X at:
a. P425,000 c. P330,000
b. P300,000 d. P345,000
Question 89 and 90 are based on the following data: Guerrero 2013

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 per cent being listed and
widely held. The stockholders' agreement between bank A and bank B establishes joint control of
the activities of bank X.
ANSWER KEY Page 31

Advance Accounting
Transactions for 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
89. What is the interest of bankAin the joint arrangement at December 31, 2013?
a. P50 M c. P48 M
b. P48.4 M d. P40 M
90. What is the interest of bank B in the joint arrangement at December 31, 2014?
a. P52.5 M c. P54.5M
b. P52.4 M d. P50.5 M
Questions 1 to 3 are based on the following data: Guerrero 2013

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 agreements:
a. The parties are the 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.
91. What is the net income (loss) of the joint arrangement on December 31,2013?
a. P5 M c. P1.5M
b. P2.0 M d. P2.5 M
92. What is the book value of the helicopter in the books of Red on December 31,2013?
a. P28.5 M c. P21.0M
b. P19.0M d. P 9.5 M

Joint Arrangement
93. What is the share of White in the net income (loss) of the joint arrangement on December
31,2013?
a. P166,667 c. P125,000
b. P150,000 d. P160,000
Use the following data in answering Nos. 1 to 3 Guerrero 2013

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 the 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 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 its 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 a 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 P1Million. 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.
94. What is the interest of Co. R in the joint venture as of December 31, 2012?
a. P14M c. P15M
b. P 14.45M d. P20M
ANSWER KEY Page 33

Advance Accounting
95. What is the net income (loss) of Entity X on December 31,2013?

a. P 8.5 M c. P15.5 M
b. P12 M d. P10.5 M
96. What is the interest of Co. S in the joint arrangement as of December 31, 2013?
a. P18.7M c. P10.0M
b. P14.5 M d. P14.0M
Numbers 1 to 3 are based on the following data: Guerrero 2013

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 to (and received from) the government.
97. What is the gross profit of the joint arrangement?

a. P8 million c. P6 million
b. P14 million d. P 4 million
98. What is the gross profit earned by A in 2013?

a. P6 million c. P4 million
b. P14 million d. P 2 million
99. What is the gross profit earned by B in 2013?

a. P 2 million c. P 7 million
b. P14 million d. P 6 millio

Joint Arrangement
ANSWER SHEET
1.B 26.A 51.A 76.B
2.A 27.D 52.D 77.B
3.C 28.D 53.A 78.A
4.B 29.C 54.B 79.A
5.D 30.D 55.A 80.B
6.A 31.B 56.A 81.B
7.D 32.B 57.D 82.A
8.A 33.D 58.D 83.A
9.B 34.D 59.B 84.A
10.A 35.D 60.D 85.A
11.A 36.D 61.A 86.C
12.A 37.A 62.D 87.B
13.C 38.B 63.A 88.A
14.A 39.C 64.C 89.B
15.D 40.B 65.C 90.B
16.A 41.B 66.B 91.A
17.C 42.B 67.B 92.D
18.D 43.C 68.A 93.A
19.A 44.A 69.D 94.B
20.D 45.A 70.D 95.A
21.B 46.A 71.A 96.A
22.A 47.B 72.B 97.C
23.A 48.C 73.A 98.C
24.A 49.B 74.A 99.A
25.B 50.C 75.D
ANSWER KEY Page 35

Practical Accounting 2 - Joint Arrangement

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Practical Accounting 2 - Joint Arrangement

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THEORY & PRACTICE

Joint Arrangement - Lecture Page 1

III. The Concept of Joint Control

IV. Types of Joint Arrangements

V. Classifying joint arrangements

Business Combination - Lecture Page 2

VI. Financial statements of parties to a joint arrangement

A. Accounting Treatment for a Joint Operation (by an Unincorporated Joint Operation)

Joint Arrangement - Lecture Page 3

B. Accounting for Joint Operations - Partnership in Nature Separate records

II. No separate records

Business Combination - Lecture Page 4

Joint Arrangement - Lecture Page 5

5. Under proportionate consolidation, the minority interest in the venture is

Joint Arrangement – MCQ Theory Page 6

Joint Arrangement - MCQ Theory Page 7

Joint Arrangement – MCQ Theory Page 8

ANSWER KEY Page 9

At December 31,2013 entity M would report its investment in entity Z at:

Joint Arrangement – MCQ Theory Page 10

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

ANSWER KEY Page 11

Cost of Unsold Merchandise charge to venturer

Joint Arrangement – MCQ Theory Page 12

ANSWER KEY Page 13

Unrealized Gross Profit

Joint Arrangement – MCQ Theory Page 14

N's Books O's Books P's Books

ANSWER KEY Page 15

Joint Arrangement – MCQ Theory Page 16

ANSWER KEY Page 17

Questions 1 thru 4 are based on the following: Dayag 2013

Joint Arrangement – MCQ Theory Page 18

Items 37 through 38 are based on the following information: Dayag 2013

ANSWER KEY Page 19

Questions 1 & 2 are based on the following: Dayag 2013

Questions 1 & 2 are based on the following: Dayag 2013

Joint Arrangement – MCQ Theory Page 20

ANSWER KEY Page 21

Questions 1 & 2 are based on the following: Dayag 2013

Questions 1 & 2 are based on the following: Dayag 2013

Joint Arrangement – MCQ Theory Page 22

The following data relate to the venture activities:

Questions 1 & 2 are based on the following: Dayag 2013

Questions 1 & 2 are based on the following: Dayag 2013

ANSWER KEY Page 23

Questions 1 & 2 are based on the following: Dayag 2013

Questions 1 & 2 are based on the following: Dayag 2013

Joint Arrangement – MCQ Theory Page 24

The joint operation profit (loss) is;

Questions 1 & 2 are based on the following: Dayag 2013

Questions 1 thru 3 are based on the following: Dayag 2013

Contributions Profit and

ANSWER KEY Page 25

A summary of the joint operations activities is presented below:

Joint Arrangement – MCQ Theory Page 26

67. In the final settlement, what amount would L pay K?

Questions 1 thru 3 are based on the following: Punzalan 2014

Questions 1 & 2 are based on the following: Punzalan 2014

ANSWER KEY Page 27

Questions 1 & 2 are based on the following: Punzalan 2014