Homewrok Topic_12_REVISED.pdf - Business School ACCT5942...

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1 Topic 12: HOMEWORK SOLUTION (CH.24) Chapter 24 Joint arrangements Review Question 2 – Joint arrangement versus associate How does a joint arrangement differ from an associate? An associate exists when an investor has significant influence over another entity. A joint arrangement exists when an investor has joint control over another entity. An investor does not need to have an arrangement with another entity in order to have significant influence whereas to have joint control there must be two or more parties who have joint control. The equity method is applied to interests in associates and joint ventures. The line-by-line method is applied to interests in joint operations. Business School ACCT5942 Corporate Accounting and Regulation Sem1, 2017
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2 Chapter 24 Joint arrangements Practice Question 24.4 - Interest in joint operation sharing output On 1 July 2016, Darwin Ltd entered into a joint agreement with Broome Ltd to form an unincorporated entity to produce a new type of widget. It was agreed that each party to the agreement would share the output equally. Darwin Ltd’s initial contribution consisted of $2 000 000 cash and Broome Ltd contributed machinery that was recorded in the records of Broome Ltd at $1 900 000. During the first year of operation both parties contributed a further $3 000 000 each. On 30 June 2017, the venture manager provided the following statements: Costs Incurred For the year ended 30 June 2017 Wages $1 840 000 Supplies 2 800 000 Overheads 2 200 000 6 840 000 Cost of inventory (4 840 000) Work in progress at 30 June 2017 $ 2 000 000 Receipts and Payments for year ended 30 June 2017 Receipts: Original contributions Additional contributions $ 2 000 000 6 000 000 8 000 000 Payments: Machinery (2/7/16) Wages Supplies Overheads Operating expenses $ 800 000 1 800 000 3 000 000 2 100 000 200 000 7 900 000 Closing cash balance $ 100 000
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