On January 1, 2013, Lebron, Bosh and Dwayne (the joint operators) jointly but a helicopter for P30 million cash. The joint arrangement includes the following terms:

a. The parties are the joint owners of the helicopterb. The helicopter is at the disposal of each party for 70 days each yearc. The parties may decide to use the helicopter or least it to a third partyd. The maintenance and disposal of the helicopter require the unanimous

consent of the partiese. The contractual arrangement is for the expected life (20 years) of the

helicopter and can be change 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 2013, the parties paid P300,000 to meet the costs of maintaining the helicopter. In 2013, each party also incurred costs of running the helicopter when they made use of the helicopter (e.g. Lebron incurred costs of P200,000 on pilot fees, aviation fuel and landing costs). In 2013, the parties earned rental income of P2.5 million by renting the helicopter to others.

1. What is the net income (loss) of the joint operation on December 31, 2013? P500,000

2. What is the book value of the helicopter in the books of Lebron on December 31, 2013? P28,500,000

3. What is the share of Bosh In the net income (loss) of the joint operation on December 31, 2013? P166,667

Solution:

Rental Income 2,500,000Operating Expenses (.3M + .2M) 500,000Depreciation Expense (30M / 20 years) 1,500,000Net Income 500,000

Cost 30,000,000Accumulated Depreciation 1,500,000Book Value 28,500,000

Net Income 500,000Percentage allocation 1 /3 Share of Bosh in Net Income 166,667

On January 1, 2011 entities A and B each acquired 30 per cent of the ordinary shares that carry voting rights at a general meeting of shareholders of entity Z for P300,000. Entities A and B immediately agreed to share control over entity Z.

For the year ended Dec. 31, 2011 entity Z recognized a profit of P400,000. On Dec. 30, 2011, entity Z declared and paid a dividend of P150,000 for the year 2011. At Dec. 31, 2011, the fair value of each venturers’ investment in entity Z is P425,000. However, there is no published price quotation for entity Z.

On Dec. 31, 2011, entity A sells goods for P60,000 to entity Z. At Dec. 31, 2011, the goods purchased from entity A were in entity Z’s inventories (they had not been sold by entity Z). Entity A sells goods at a 50 per cent mark-up on cost. Entities A and B account for jointly controlled entities using the equity method.

The amount of investment to be recognized by entity A should be? P369,000

Solution:

ProfitUnrealized gain [60k x (50%/150%)]

Net Income

Purchase Price

Share in Net Income (380k x 30%)

Dividends Received

On December 31, 2009, entity A, an SME, acquired 30% of the ordinary shares that carry voting rights of entity Z for P100,000. In acquiring those shares entity A incurred transaction costs of P1,000. Entity A has entered into a contractual arrangement with another party (entity C) that owns 20% of the ordinary shares of entity Z, whereby entities A and C jointly controlled entity Z. entity A uses the cost model to account for its investments in JCE. A fair valuation of the investments in entity Z determined using a reliable earnings multiple approach exists. In January 2010, entity Z declared and paid dividend of P20,000 out of profits earned in 2009. No further dividends were paid in 2010, 2011 and 2012. At December 31, 2010, 2011 and 2012, management assessed the fair values of its investment in entity Z as P102,000, P110,000 and P90,000, respectively. Costs to sell are estimated at P4,000 throughout. Entity A measures its investment in entity Z on December 31, 2011 at? P101,000

Solution:

Purchase Price

Transaction Costs 1,000Investment in entity

On January 1, 2013, entities X and Y each acquired 25 percent of the ordinary shares that carry voting rights at a general meeting of shareholders of entity C for P5,250,000. Entities X and Y immediately agreed to share control over entity C. For the year ended December 31, 2013, entity C recognized a profit of P7,000,000. On December 31, 2013, entity C declared and paid a dividend of P2,625,000 for the year 2012. On December 31, 2013, the fair value of each venturers’ investment in entity C is P7,437,500. However, there is a published price quotation for entity C.

Assuming Entity X uses the cost model to account for its investment in entity C, how much is the investment in December 31, 2013? P7,437,500

Solution:

Fair value of the investment 7,437,500

On March 1, 2013, entities A and B each acquired 30 percent of the ordinary shares that carry voting rights at a general meeting of shareholders of entity Z for P525,000. Entities A and B immediately agreed, to share control over entity Z. On December 31, 2013, entity Z declared a dividend of P175,000 for the year 2012. Entity Z reported a profit of P140,000 for the year ended December 31, 2013. On December 31, 2013, the fair value of the investment is P507,500. Costs to sell is P5,250. There is no published price quotation for entity Z.

Assuming Entity B uses the cost model to account for its investment in entity Z, how much is the investment in December 31, 2013? P502,250

On January 1, 2014, HHH, III, and JJJ (all are corporations) establish a joint undertaking to manufacture a product they agree to share equally. Each will contribute P200,000 into the operation; HHH and III are to contribute cash while JJJ is to contribute equipment with a cost of P185,000. The equipment has a remaining life of 10 years when contributed.

Determine the amount JJJ will show the Equipment in JO account in its balance sheet at January 1, 2014. P61,667

Determine the net amount JJJ will show the Equipment in JO account in its balance sheet at December 31, 2014. P55,500

Determine the net amount HHH (or III) will show the equipment in JO account in its balance sheet at December 31, 2014. P60,000

Assume the book carrying value of the equipment contributed by JJJ is P215,000 and the fair value is P200,000. At what amount will each of the operators show the Equipment in JO in its January 1, 2014 and in its December 31, 2014 balance sheets, respectively? P66,667 and P60,000, respectively

Solutions:

Equipment per books of JO, 1/1/14 (FV) 200,000Multiply by 1 /3 Each Joint operator’s equal share 66,667JJJ’s unrealized gain as of

1/1/14 (15,000 x 1/3)( 5,000 JJJ - Equipment in JO account 1/1/14 61,667

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Equipment per books of JO, 1/1/14 200,000Accumulated depreciation 20,000Equipment per books of JO, 12/31/14 180,000Multiply by 1 /3 Each Joint operator’s equal share 60,000JJJ’s unrealized gain as of

12/31/14 (5,000 x 90%)( 4,500 JJJ – Equipment in JO account 12/31/14 55,000

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Equipment per books of JO, 1/1/14 200,000Accumulated depreciation 20,000Equipment per books of JO, 12/31/14 180,000Multiply by 1 /3 HHH (or III) – Equipment in JO account

12/31/14 60,000

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Equipment per books of JO, 1/1/14 (FV) 200,000Multiply by 1 /3 Each Joint operator’s equal share, 1/1/14 66,667

Equipment per books of JO, 12/31/14 180,000Multiply by 1 /3 Each Joint operator’s equal share, 12/31/14 60,000