Ch24 tb leo 10e - Ch24 tb leo 10e PDF

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Testbankto accompanyCompany Accounting10ebyKen Leo, Jeffrey Knapp, Sue McGowan &John SweetingPrepared byPeter BaxterChapter 24: Investments in joint arrangements© John Wiley & Sons Australia, Ltd 2015Chapter 24: Investments in joint arrangements According to AASB 11 Joint Arrangement...

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Testbank to accompany Company Accounting 10e

Testbank to accompany

Company Accounting 10e by Ken Leo, Jeffrey Knapp, Sue McGowan & John Sweeting Prepared by

Peter Baxter

© John Wiley & Sons Australia, Ltd 2015

24.0

Testbank to accompany Company Accounting 10e

© John Wiley & Sons Australia, Ltd 2015

© John Wiley & Sons Australia, Ltd 2015

24.1

Chapter 24: Investments in joint arrangements

Chapter 24: Investments in joint arrangements Multiple-choice questions 1.

Which of the following statements is incorrect? a. b. *c. d.

Joint arrangements can be classified into joint operations and joint ventures. A joint arrangement has two main characteristics. Joint arrangements are always structured as companies. The key feature of a joint arrangement is that the parties involved have joint control over the decision making in relation to the joint arrangement.

Correct answer: c Learning Objective 24.1 ~ explain the nature of a joint arrangement and how to classify joint arrangements into joint ventures and joint operations. 2.

The particular relationship between parties that signifies the existence of a joint arrangement is: a. b. c. *d.

dominating influence by one party over the other party. control over the operating policies of one party by another party. shared influence by two parties over the activities of another party. joint control by the parties over the activities of an arrangement.

Correct answer: d Learning Objective 24.1 ~ explain the nature of a joint arrangement and how to classify joint arrangements into joint ventures and joint operations. 3.

The assessment of the rights and obligations in an arrangement requires the analysis of which of the following factors?    

I II III IV Legal form of the arrangement Yes Yes Yes Yes Other relevant factors and circumstances Yes Yes Yes No Structure of the arrangement No Yes Yes Yes Terms agreed to by the parties in the contract No No Yes No

a. b. *c. d.

I II III IV

Correct answer: c Learning Objective 24.1 ~ explain the nature of a joint arrangement and how to classify joint arrangements into joint ventures and joint operations. © John Wiley & Sons Australia, Ltd 2015

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Testbank to accompany Company Accounting 10e

4.

According to AASB 11 Joint Arrangements, joint control exists where: *a. b. c. d.

no single party is in a position to control the activity unilaterally. the decisions in areas essential to the goals of the joint arrangement do not require the consent of the parties. no one party may be appointed as the manager of the joint arrangement. one party alone has power to control the strategic operating decisions of the joint arrangement.

Correct answer: a Learning Objective 24.1 ~ explain the nature of a joint arrangement and how to classify joint arrangements into joint ventures and joint operations. 5.

If the joint arrangement is not structured through a separate vehicle, the arrangement is classified as a: a. b. *c. d.

joint venture. joint vehicle. joint operation. joint structure.

Correct answer: c Learning Objective 24.1 ~ explain the nature of a joint arrangement and how to classify joint arrangements into joint ventures and joint operations. 6.

Which of the following statements is not correct in relation to joint control? *a. b. c. d.

Joint control can exist without the existence of a contractual arrangement. Joint control exists only where there is contractually agreed sharing of control. Entities over which a party has joint control are accounted for in accordance with AASB 11 Joint Arrangements. Joint control requires the unanimous consent of the parties sharing control.

Correct answer: a Learning Objective 24.1 ~ explain the nature of a joint arrangement and how to classify joint arrangements into joint ventures and joint operations. 7.

Ying Limited and Yang Limited agreed to form a joint operation to offer health services. To start the operation the joint operators agreed to contribute cash of $500 000 each. The joint operation will record which of the following entries to recognise this event? a. b.

DR Joint operator contributions CR Cash DR Cash CR Joint operator revenue © John Wiley & Sons Australia, Ltd 2015

$1 000 000 $1 000 000 $1 000 000 $1 000 000 24.3

Chapter 24: Investments in joint arrangements

c. *d.

DR Venturer’s equity — Ying Limited $500 000 DR Venturer’s equity — Yang Limited $500 000 CR Cash DR Cash CR Joint operation contribution — Ying CR Joint operation contribution — Yang

$1 000 000 $1 000 000 $500 000 $500 000

Correct answer: d Learning Objective 24.2 ~ explain the accounting undertaken by the joint operation itself. 8.

Cash contributed to a joint operation was used to purchase Equipment ($250 000) and raw materials ($100 000). The entry by the joint operation to record of these transactions is which of the following? *a. DR Equipment $250 000 DR Raw materials $ 100 000 CR Cash b. DR Work in progress $350 000 CR Joint operation capital c. DR Cash $350 000 CR Contribution to joint operation d. DR Cash $350 000 CR Equipment CR Raw materials

$350 000 $350 000 $350 000 $250 000 $100 000

Correct answer: a Learning Objective 24.2 ~ explain the accounting undertaken by the joint operation itself.

9.

Three joint operators are involved in a joint operation that manufactures mining equipment. At the beginning of the year the joint operation held $100 000 in cash. During the year, the joint operation paid wages of $40 000. Additionally, creditors amounting to $80 000 were paid and the joint operators contributed $30 000 cash each to the joint operation. The balance of cash held by the joint operation at the end of the year is: a. b. *c. d.

$10 000. $50 000. $70 000. $150 000.

Correct answer: c Learning Objective 24.2 ~ explain the accounting undertaken by the joint operation itself.

10.

Accounting for a joint venture is done by application of the: *a. b.

equity method. fair value method. © John Wiley & Sons Australia, Ltd 2015

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Testbank to accompany Company Accounting 10e

c. d.

consolidation method. present value method.

Correct answer: a Learning Objective 24.2 ~ explain the accounting undertaken by the joint operation itself.

11.

Which of the following statements is incorrect? a. *b. c. d.

Accounting records do not need to be prepared for the joint operation itself. Accounting for a joint venture is the same from that of a joint operation. AASB 11 Joint Arrangements do not provide standards on accounting for the joint operation itself. The statement of financial position is the joint operation’s main financial statement.

Correct answer: b Learning Objective 24.2 ~ explain the accounting undertaken by the joint operation itself. 12.

Alfie Limited and Benny Limited formed a joint operation and share in the output of the joint operation 60:40. The joint operation paid a management fee of $40 000 to Alfie Limited during the current period. The cost to Alfie Limited of supplying the management service was $28 000. Alfie Limited records the management fee revenue as follows: *a. b. c. d.

DR CR DR CR DR CR DR CR

Cash

$40 000 Fee revenue Cash $28 000 Fee revenue Cash $ 24 000 Fee revenue Cash $16 000 Fee revenue

$40 000 $28 000 $24 000 $16 000

Correct answer: a Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 13.

Each joint operator must recognise in its own accounts: a. b. c. *d.

its expenses incurred in construction of a joint product. its share of any jointly held liabilities. its share of any expenses incurred by the joint operation. all of the above.

Correct answer: d Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. © John Wiley & Sons Australia, Ltd 2015

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Chapter 24: Investments in joint arrangements

14.

A 50:50 joint operation was commenced between two participants. Ronan Ltd contributed cash of $100 000, and Keating Ltd contributed a Building with a fair value of $100 000 and a carrying amount of $80 000. Using the line-by-line method of accounting, Keating Ltd would record which of the following entries? a. DR

Building in JO $80 000 CR Building b. DR Building in JO $100 000 CR Building CR Gain on sale of building c. DR Investment in joint operation $100 000 CR Building CR Gain on sale of building *d. DR Cash in JO $50 000 DR Building in JO $50 000 CR Building CR Gain on sale of building

$80 000 $80 000 $20 000 $80 000 $20 000 $80 000 $20 000

Correct answer: d Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation.

15.

A joint operation holds equipment with a carrying amount of $1 200 000. The two joint operators participating in this arrangement share control equally. They also depreciate equipment using the straight-line method. The equipment has a useful life of 5 years. At reporting date, each joint operator must recognise which of the following entries in its records in relation to depreciation? a. *b. c. d.

DR DR DR DR

Depreciation expense Depreciation expense Investment in joint operation Assets in joint operation

$240 000 $120 000 $240 000 $120 000

Correct answer: b Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 16.

In relation to the supply of a service to a joint operation by one of the joint operators, which of the following statements is correct? a. b. *c.

A joint operator can recognise 100% of the earned through the supply of services to the joint operation. A joint operator is entitled to recognise a profit from the supply of services to itself. A joint operator cannot earn a profit on supplying services to itself. © John Wiley & Sons Australia, Ltd 2015

24.6

Testbank to accompany Company Accounting 10e

d.

It is uncommon for a joint operator to act in a management position for the joint operation.

Correct answer: c Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 17.

Pelican Limited and Waters Limited formed a joint operation and share equally in the output of the joint operation. The joint operation paid a management fee of $60 000 to Pelican Limited during the current period. The cost to Pelican Limited of supplying the management service was $42 000. Pelican Limited records the costs of supplying the management services as which of the following entries? *a. b. c. d.

DR Cost of supplying services $42 000 CR Cash DR Cost of supplying services $18 000 CR Cash DR Cash $ 42 000 CR Costs of supplying services DR Fee revenue $ 60 000 CR Cash

$42 000 $18 000 $ 42 000 $ 60 000

Correct answer: a Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 18.

Crazy Limited and Frog Limited formed a joint operation and share in the output of the joint operation 60:40. The joint operation paid a management fee of $40 000 to Crazy Limited during the current period. The cost to Crazy Limited of supplying the management service was $28 000. The amount of profit that Crazy Limited will recognise in relation to the provision of the management fee to the joint operation is: a. *b. c. d.

nil. $4800. $7200. $12 000.

Correct answer: b Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 19.

Three joint operators agree to an arrangement in which they have an equal share in an manufacturing joint operation. The work undertaken in setting up the joint operation cost $600 000 and each operator contributed in cash. Each operator will need to recognise which of the following accounting entries? © John Wiley & Sons Australia, Ltd 2015

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Chapter 24: Investments in joint arrangements

a. b. c. *d.

DR Work in progress in JO CR Cash DR Inventory in JO CR Cash DR Cash in JO CR Cash DR Cash in JO CR Cash

$600 000 $600 000 $200 000 $200 000 $600 000 $600 000 $200 000 $200 000

Correct answer: d Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 20.

A 50:50 joint operation was commenced between Suncorp Ltd and Stadium Ltd. Suncorp Ltd contributed cash of $200 000, and Stadium Ltd contributed a building with a fair value of $200 000. Using the line-by-line method of accounting, Suncorp Ltd would record which of the following entries? a. b. c. *d.

DR Building in JO CR Cash DR Cash in JO CR Cash DR Investment in joint operation CR Cash DR Cash in JO DR Building in JO CR Cash

$200 000 $200 000 $200 000 $200 000 $200 000 $200 000 $100 000 $100 000 $200 000

Correct answer: d Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 21.

Which of the following statements is incorrect? a. A joint operator contributing assets other than cash cannot transfer the asset at fair value to the joint operation and recognise a full profit on the transaction. *b. Where an operator contributes a non-current asset to a joint operation, the value of the contribution is the asset’s historical cost. c. If a joint operator supplies management services to the joint operation, it cannot earn a profit on supplying services to itself. d. Where an operator contributes a non-current asset to a joint operation, the value of the contribution is effectively the non-current asset’s fair value.

Correct answer: b Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. © John Wiley & Sons Australia, Ltd 2015

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Testbank to accompany Company Accounting 10e

22.

Ally Ltd and Cat Ltd have established the Ally Cat Joint Operation. Ally Ltd has a 60% interest in the joint operation and Cat Ltd has a 40% interest. Ally Ltd contributed an asset with a carrying amount of $180 000 and a fair value of $240 000 and Cat Ltd agreed to provide technical services to the joint operation over the first two years of operations. The fair value of the technical services was agreed to be $160 000 and the cost to provide the services was estimated at $130 000 at the inception of the joint operation. As part of its initial contribution entry Ally Ltd will record a: a. *b. c. d.

debit against the services receivable in JO account of $64 000. debit against the plant in JO account of $108 000. credit against the plant of $240 000. credit against the gain on sale of plant of $36 000.

Correct answer: b Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 23.

Ally Ltd and Cat Ltd have established the Ally Cat Joint Operation. Ally Ltd has a 60% interest in the joint operation and Cat Ltd has a 40% interest. Ally Ltd contributed an asset with a carrying amount of $180 000 and a fair value of $240 000 and Cat Ltd agreed to provide technical services to the joint operation over the first two years of operations. The fair value of the technical services was agreed to be $160 000 and the cost to provide the services was estimated at $130 000 at the inception of the joint operation. As part of its initial contribution entry Cat Ltd will record a: a. b. *c. d.

debit against the services receivable in JO account of $64 000. debit against the plant in JO account of $72 000. credit against the obligation to JO of $78 000. credit against the gain on provision of services of $12 000.

Correct answer: c Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 24.

On 1 July 2010, the Ears & Eyes Joint Operation was established. The two joint operators participating in this arrangement, Ears Ltd and Eyes Ltd, share control equally. Both joint operators contributed cash to establish the joint operation. The joint operation holds equipment with a carrying amount of $1 200 000. Both joint operators depreciate equipment using the straight-line method and the depreciation is regarded a cost of production. The equipment has a useful life of 5 years. At 30 June 2011, Ears Ltd had sold all of the inventory distributed to it and Eyes Ltd had sold 50% of the inventory distributed to it. At 30 June 2011, Eyes must recognise which of the following entries, in relation to depreciation, in its records? © John Wiley & Sons Australia, Ltd 2015

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Chapter 24: Investments in joint arrangements

a. b. *c. d.

DR DR DR DR

Depreciation expense Accumulated depreciation Inventory Cost of goods sold

$240 000 $120 000 $60 000 $120 000

Correct answer: c Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 25.

When eliminating any unrealised profit arising when a joint operator provides services to a joint operation, the profit is eliminated against: a. b. *c. d.

the investment in the joint operation. fee revenue. work in progress, finished goods and other inventory related accounts. cash in JO.

Correct answer: c Learning Objective 24.3 ~ prepare the journal entries required by a joint operator to recognise its share of the assets, liabilities, revenues and expenses of the joint operation. 26.

On 1 July 2010, Sunday Ltd entered into a 50:50 joint operation with Night Ltd to develop an open cut coal mine in central Queensland. Each operator’s initial contribution was $4 million. Sunday contributed $2 million cash and equipment with a fair value of $2 million and a book value of $1 000 000. Night contributed $4 million cash.

Additional information 

Production costs for the JO for the year ended 30 June 2011 were as follows.

Purchases Wages Management fee Total production costs Less: work in progress Cost of production   

$’000 1 500 2 600 800 4 900 (1300)

3 600

The remaining useful life of the equipment contributed by Sunday is 5 years. Night is responsible for the day to day management of JO and has recognised the management fee received during...