UNIVERSITY OF CAPE COA ST

COLLEGE OF HUMANITIES AND LEGAL STUDIES

Question 1
In each of the following scenarios three entities A, B and C establish an arrangement.
Scenario 1: Decisions about relevant activities require the unanimous consent of A, B and C. The
shareholdings are: A = 50%; B = 30% and C = 20%
Scenario 2: Decisions about relevant activities require at least 75% of voting rights. The shareholdings are:
• A = 50%; B = 30% and C = 20%

Scenario 3: Decisions about relevant activities require at least 75% of voting rights. The shareholdings are:
• A = 50%; B = 25% and C = 25%
Required: For each scenario, analyse whether a joint arrangement exists, and which parties have
joint control.
Question 2
On 1 January 2017, ABUI Ltd entered into a contractual agreement with BAADU to produce a new product.
ABUI Ltd undertakes one manufacturing process and BAADU undertakes the other. Both parties have
agreed that decisions regarding their activities will be made unanimously and that each will bear their own
expenses and take an agreed share of the sales revenue from the product.

In a separate agreement, ABUI and KOKUI decide to form an entity such that, ABUI will own 55% of the
equity capital of the new entity, with KOKUI owning the remaining 45%. They agreed that decision making
regarding the new entity will be unanimous and that they will have an interest in the net assets of the new
entity.
Required: With reference to the appropriate standard, discuss how the above transactions should
be accounted for in the books of ABUI Ltd.

Question 3
Two entities, Dromo and Shidaa (the parties) set up a separate entity (East Mall) 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 East Mall. The main feature of East Mall’s legal form is that the entity,
not the parties, has rights to the assets, and obligations for the liabilities, relating to the arrangement. The
terms of the contractual arrangement are such that:
1. East Mall owns the shopping centre. The contractual arrangement does not specify that the
parties have rights to the shopping centre.
2. The parties are not liable in respect of the debts, liabilities or obligations of East Mall. If East
Mall is unable to pay any of its debts or other liabilities or to discharge its obligations to third
parties, the liability of each party to any third party will be limited to the unpaid amount of
that party’s capital contribution.
 3. The parties have the right to sell or pledge their interests in East Mall.
4. Each party receives a share of the income from operating the shopping centre (which is the
rental income net of the operating costs) in accordance with its interest in East Mall.

Required: Explain how East Mall should be classified in accordance with IFRS 11 Joint Arrangements
and how to account for East Mall in the books of the parties.

Question 4
Blast has a 30% share in a joint operation. The assets, liabilities, revenues and costs of the joint operation
are apportioned on the basis of shareholdings. The following information relates to the joint arrangement
activity for the year ended 30 November 2018:
• The manufacturing facility cost GH¢30,000,000 to construct and was completed on 1 December
2017 and is to be dismantled at the end of its estimated useful life of 10 years. The present value of
this dismantling cost to the joint arrangement at 1 December 2017, using a discount rate of 8%, was
GH¢3,000,000.
• During the year ended 30 November 2018, the joint operation entered into the following transactions:
– goods with a production cost of GH¢36,000,000 were sold for GH¢50,000,000
– other operating costs incurred amounted to GH¢1,000,000
– administration expenses incurred amounted to GH¢2,000,000.

Blast has only accounted for its share of the cost of the manufacturing facility, amounting to GH¢9,000,000.
The revenue and costs are receivable and payable by the two other joint operation partners who will settle
amounts outstanding with Blast after each reporting date.
Required: Show how Blast will account for the joint operation within its financial statements for the
year ended 30 November 2018.

Question 5
On 1 January 2019, Jessy Ltd and Justy Ltd entered into a joint operation to purchase and operate an oil
pipeline. Both entities contributed equally to the purchase cost of GH¢4,000,000 and this was financed by a
joint loan of GH¢4,000,000.
The terms of the contract are as follows:
• Jessy Ltd carries out all maintenance work on the pipeline but maintenance expenses are shared
between Jessy and Justy in the ratio 60%: 40%.
• Both entities use the pipeline for their own operations and share any income from third parties
50%: 50%. Sales to third parties are invoiced by Justy.
• The full interest on the loan is initially paid by Justy Ltd but the expense is to be shared equally.

During the year ended 31 December 2019, Jessy Ltd carried out maintenance at a cost of GH¢240,000.
Income from third parties was GH¢180,000, all paid to Justy Ltd. Interest of GH¢300,000 was paid for the
year on 31 December by Justy.
Required
a) Show the relevant figures that would be recognised in the Statement of Financial Position and the
Statement of Profit or Loss for the for the year to 31 December 2019 Jessy and Justy. Be guided
by the following headings.
Schedule of Relevant Figures to be Recognised in Financial Statements
Total (GH¢) Jessy (GH¢) Justy (GH¢)
Statement of Financial Position

b) Comment on how the figures must be reflected in the separate and consolidated financial
statements of the operators.