Midterm – Assignment Joint Arrangements, November 2024

1. On January 1 2023 entities Q and R (the venturers) form a joint venture (entity S). upon
incorporation of entity S, entities Q and R each take up 50 percent of the share capital of entity
S. in return for their interests in entity S, entities Q and R each contribute P100,000 to entity S.
entity Q contributes machine with a fair value of P100,000 and carrying amount of P80,000.
Entity R’s contribution is P100,000 cash.
The machine contributed by entity Q has an estimated useful life of 10 years wit no residual
value.
Entity S’s profit for the year ended December 31, 2023 is P30,000 ( after deducting depreciation
expense of P10,000 on the machine contributed by entity Q). entity Q accounts for his
investment using the equity method.
What is the cost of investment of entity Q on December 31 2023? _________________________

2. On January 1,2023 entities M and N each acquired 30 percent of the ordinary shares that carry
voting rights at a general meeting of shareholders of entity Y for P100,000. The purchase price is
equal to the fair value of 30 percent of entity Y’s identifiable assets less 30 percent of its
identifiable liabilities.
Entities M and N immediately agreed to share control over entity Y.
For the year ended December 31, 2023 entity Y recognized a loss of P600,000. Entities M and N
have no constructive or legal obligation with respect of their jointly controlled entity’s loss and
have made no payments on its behalf.
Entity Y recognized profit for the year ended December 31, 2023 of P800,000. There is no
published price quotation for entity Y. investments are accounted for using the equity method.
a. At December 31, 2023, how much investment in entity Y should be reported by each
venturer? ________________________________
b. At December 31, 2023 at what amount each venturer must measure their investment in
entity Y? __________________________________
3. On January 1, 2023, LLL, BBB and DDD, the joint operators, jointly buy a helicopter for P30
million cash. The joint arrangement includes the following terms:
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 requires the unanimous consent of the
parties.
e. The contractual arrangement is for the expected life (20 years) of the helicopter and can be
changed only if all parties agree. The residual value of the helicopter is nil.
f. Revenues and expenses are to be shared equally among the joint operators.
In 2023, the parties paid P300,000 to meet the costs of maintaining the helicopter. In 2023,
each party also incurred costs of running the helicopter when they made use of the
helicopter (e.g. LLL incurred costs of P200,000 on pilot fees, aviation fuel and landing
costs). In 2023, the parties earned rental income of P2.5 million by renting the helicopter to
others. What is the book value of the helicopter in the books of LLL on December 31, 2023?
_____________________________________

4. On January 1, 2021, Entity A, a public entity and Entity B, a public entity incorporated Entity C
which has its fiscal and operational autonomy. The contractual agreement of the incorporating
entities provides that the decisions on relevant activities of Entity C will require the unanimous
consent of both entities. Entity A and Entity B will have rights to the net assets of Entity C.
Entity A and Entity B invested P1,000,000 and P1,500,000, respectively, equivalent to 40:60
capital interest of Entity C.
Th financial statements of Entity C provide the following data for its three-year operation:
Year 2021 Year 2022 Year 2023
Net income (Net loss) P200,000 (P3,000,000) P5,000,000
Dividends declared 100,000 - 1,000,000
a. What is the balance of Investment in Entity C to be reported by Entity A in its Statement of
Financial Position on December 31, 2021? _____________________________

b. What is the investment loss to be reported by Entity B concerning its interest in Entity C for
the year ended December 31, 2022? _________________________________
 c. What is the investment income to be reported by Entity A concerning its interest in Entity C
for the year ended December 31, 2023? ______________________________

d. What is the balance of Investment in Entity C to be reported by Entity B in its Statement of

5. On January 1, 2020, Entity A and Entity B both SME’s incorporated Entity C, a jointly controlled
entity by investing P500,000 each in exchange for 10,000 ordinary shares each of Entity C. Entity
A and Entity B each incurred P20,000 transaction costs. The contractual agreement of the
incorporating entities provides that the decisions on relevant activities of Entity C will require
the unanimous consent of both entities. Entity A and Entity B will have rights to the net assets of
Entity C.
For the year ended December 31, 2020, Entity C reported net income of P100,000 and declared
dividends in the amount of P30,000.
a. If Entity A elected fair value model to account its investment in Entity C, what is the net
effect in Entity A’s profit or loss for the year ended December 31, 2020? ___________________

b. If Entity B elected equity method to account its investment in Entity C, what is the book
value of Entity B’s Investment in Entity C on December 31, 2020? _______________________