View the step-by-step solution to:

On 1 July 2016 T Ltd enters into a joint venture arrangement with S Ltd establishing an incorporated B Ltd.

On 1 July 2016 T Ltd enters into a joint venture arrangement with S Ltd establishing an incorporated B Ltd. company Both venturers commit themselves to a contractual arrangement in which T Ltd contributes plant and machinery with a fair value of $40million; S Ltd contributes cash of $20million and land with a fair value of $20million, which is considered to be a good site for the extraction of minerals. The cash that is contributed is used partly to acquire some additional machinery at a cost of $14million, with the balance of the cash on hand to meet operational requirements.

Additional information:

§ The machinery contributed by T Ltd has a book value of $42million (cost $60million; accumulated depreciation $18million), and a fair value of $40million

§ The land contributed by S Ltd has a book value of $16million and a fair value of $20million

§ All current and future contributions are to be based on a 50:50 split, as are the future distributions of output.

 

For the year ending 30 June 2017, the joint venture prepares the following balance sheet, cash flow statement and statement of production costs. To date, no minerals have been removed, although the venturers do consider that economically recoverable reserves exist. All production costs have been transferred to an asset account called deferred exploration and evaluation expenditure in anticipation of amortising the asset as production commences.


3.PNG

4.PNG

5.PNG

Prepare the Journal entries in the records of T Ltd. and S Ltd. for the year ended 30 June 2017 in accordance with equity method of accounting.

3.PNG

4.PNG

5.PNG

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question