ENABLING ASSESSMENT

1. Ampalaya Company purchased 40% of Banana Company on January 1 for P500,000 that carry voting
rights at a general meeting of shareholders of Banana Company. Ampalaya Company and Bataw
Company agreed to joint control over Banana Company. Banana reports assets on that date of
P1,400,000 with liabilities of P500,000. One building with a 7-year life is undervalued on Banana’s
books by 140,000. Banana’s book value for its trademark (10-year life) is undervalued by 120,000.
During the year, Banana reports net income of P90,000, while paying dividends of P30,000.

● The income from investment in Banana Company in Ampalaya’s financial records on December
31 is ________.
19600

● The Investment in Banana Company balance in Ampalaya’s financial records on December 31

is ________.
507600

2. Valerie Company acquired a 30% interest in the voting stock of Zen Company for P331,000 on January
1, 2020, when Zen’s shareholders’ equity consisted of share capital of P600,000 and retained earnings
of P400,000. At the time of Valerie’s investment, Zen’s assets and liabilities were recorded at their fair
values, except for inventories that were undervalued by P30,000 and a building with a 10-year
remaining useful life was overvalued by P60,000. Zen has income for 2020 of P100,000 and pays
dividends of P50,000. Inventories were sold in 2020. Using equity method,

● Valerie’s share of Zen’s recorded net assets at December 31, 2020 is ________.
315000

● The balance of Valerie’s investment in Zen account at December 31, 2020 is ________.
338800

● Valerie’s net income from Zen for 2020 is ________.

22800

3. On July 1, 20x4, Jolo Company acquired 25% of the shares of Leny Company for P100,000. On that
date, the equity of Leny was P400,000, with all identifiable assets and liabilities being measured at fair
value. Profits/(Losses) made since the date of acquisition are as follows:

Year ended June 30 Profit/(loss)

20x5 20,000

20x6 (200,000)

20x7 (250,000)

20x8 16,000

20x9 20,000

There have been no dividends paid or movements in reserves since the date of acquisition.
 ● On June 30, 20x5, the balance of the investment in Leny was ________.
105000

● On June 30, 20x7, the balance of the investment in Leny was ________.
0

● On June 30, 20x8, the balance of the investment in Leny was ________.
0

4. On January 1, 2021, X Co. and Y Co. signed an agreement to form a joint operation to manufacture a
product called plasma. This product is used in the manufacturing of television. The following are
transactions that transpired in relation to joint operations in 2021:
a. Both operators contributed P252,000 in cash.
b. Bought machinery and equipment worth P134,400, paying P84,000 cash and the balance on a
loan account.
c. Purchased raw materials on account, P109,200.
d. Incurred wages, P120,960 and paid P117,600 in cash.
e. Obtained a loan from the bank and received the proceeds, P100,800.
f. Paid for the loan pertaining to the machinery and equipment acquired, P16,800.
g. Paid for the account pertaining to materials purchased, P70,560.
h. Paid for factory expenses, P218,400.
i. Recorded depreciation of machinery and equipment, P13,440.
j. Transferred to work in process the following: labor, P120,960; materials, P80,640; and factory
overhead, P231,840.
k. Transferred work in process to finished goods, P302,400.
l. Transferred finished goods to joint operators, P268,800.

● On December 31, 2021, X’s investment amounted to ________.

117600

● On December 31, 2021, Y’s investment amounted to ________.

117600

● The total assets on December 31, 2021 is ________.

394800

● On December 31, 2021, net assets of the joint operation amounted to ________.
235200

● The ending balance of cash is ________.

80640

● The work in process ending balance amounted to ________.

131040

5. In preparation for their barangay fiesta which is celebrated on the last Sunday of May, Paulo, Edwin
and Marco agreed to sell juice, soft drinks, snacks, etc. from May 12 to 26. Marco agrees to construct
the stands at strategic places in the civic park of the Barangay and charge the cost to operations. Paulo
 will arrange for a permit from the Homeowners' Association and pay 1% of sales during the period.
Paulo, Edwin and Marco decide that distribution of profits, if any, after the payment of the 1% of sales
to the Homeowners' Association and a 30% commission on individual sales, will be as follows; 50% to
Paulo, 40% to Marco and 10% to Edwin. The venture is purely on trust among the participant friends,
that all purchases and sales transactions are each individual's responsibility and will be out-of-pocket.
All sales are to be made at 80% mark-up on cost except unsold items which may be purchased at 80%
of cost after the fiesta by anyone of the venture participants. Transactions of the joint venture are as
follows:

1st week - Marco constructs three stands in the civic park costing P 3,000. Paulo pays P30,000 for the
purchase of items to be sold.
2nd week - Paulo buys additional goods for P60,000; PI0,000 coming from Edwin and P5,000 from
Marco. The balance is from Paulo's money.

Sales for the two-week period follow: Paulo, P80,000: Marco, P40,000; Edwin. P33 000. The 1% of
sales was paid by Paulo to the Homeowners' Association. Edwin agrees to pay P2,000 for the
stands and the balance of unsold merchandise was bought by Marco.

● The joint operation income is ________.

66000

● In the final cash settlement among the joint operators, the amount paid by Edwin is ________.
13243

● The share of Paulo in the income of the joint operation is ________.

34815

● The share of Marco in the joint operation income is ________.

19428

● The share of Edwin in the joint operation income is ________.

11757

● The value assigned to the ending inventory taken by Marco is ________.

4000

● In the final cash settlement among the joint operators, the amount received by Paulo is
________.
29815

● In the final cash settlement among the joint operators, the amount paid by Marco is ________.
16572

6. Rene is allowed a salary of P120,000; remaining profit or loss is to be divided equally. The following
balances appear at the end of 2020 before adjustment for inventory and profits:

Debit Credit

Joint Operation Cash 480,000

 Joint Operation 150,000

Sinbad, Capital 30,000

Taro, Capital 270,000

The joint operation is to terminate as of December 31, 2020. Unsold merchandise costing P105,000 are
taken over by Taro. Rene made the settlement to Sinbad and Taro.

● In the final settlement, the amount that Rene received is ________.

165000

● In the final settlement, the amount that Sinbad received is ________.

15000

● In the final settlement, the amount that Taro received is ________.

210000

● The profit share of Taro is ________.

45000

● The profit share of Sinbad is ________.

45000

● The profit share of Rene is ________.

165000

● The joint operation net income is ________.

255000

7. The following joint operation account reflects the transactions of the operators, Ancyn, Aimee and Mila
as recorded by Aimee:

Joint Operation

2020 2020

Nov 6 - Merchandise-Mila 85,000 Nov 20 - Cash sales - Ancyn 204,000

Nov 8 - Merchandise - Aimee 70,000 Nov 12 - Cash sales - Ancyn 42,000

Nov 10 - Freight paid - Ancyn 2,000 Nov 28 - Merchandise - Aimee 12,100

Nov 12 - Advertising-Ancyn 1,500

Dec 8 - Purchases - Ancyn 35,000

Dec 14 - Selling expense - Ancyn 4,000

The agreement provided for the division of gains and losses among Ancyn, Aimee, and Mila in the ratio
of 5:3:2. The joint operation was to close as of December 31, 2020.
 ● The cash received by Mila is ________.
97120

● The cash received by Aimee is ________.

76080

● The cash received by Ancyn is ________.

0

● The joint operation income is ________.

60600

8. A joint operation was formed on May 30, 2020 by Sancho and Castro in order to dispose their ordinary
capital shares of Palawan Oil Company. Sancho gave 12,000 shares costing P50 per share and Castro
contributed 8,000 shares costing P55 per share. Market value when the joint operation was formed was
P45 per share. They agreed on the following:
❖ Sancho, as manager, will get a fee of 1% of sale.
❖ Profits or losses shall be shared in proportion to their contributed share after deducting the fee
and other expense.

Following were the stock transactions involving their shares:

June 5 4,000 shares were sold at P44 per share.

June 15 6,000 shares were sold at P40 per share.

June 30 Cash dividend of P2 per share was received.

July 7 3,500 shares were sold at P38 per share

July 31 Stock dividend of 15% was declared.

August 1 Remaining stock was sold for P35 per share.

Total miscellaneous expenses of Sancho was P1,500. The joint operation ended on August 5, 2020.

● The 20,000 shares contributed to the joint operation should be valued at ________.
900000

● The loss of Sancho on the disposition of his shares in Palawan Oil Company was ________.
107388.75

● The loss of Castro on the disposition of his shares in Palawan Oil Company was ________.
111592.50

● The net loss of the joint venture was _______.

78981.25

● In the distribution of proceeds, the share of Castro was ______.

 328407.50

● In the distribution of proceeds, the share of Sancho was ______.

492611.25

9. Dora Company acquired a 30% interest in Ogie Company on January 1 for P2,000,000 cash. The cost
of the investment equals the fair value of Ogie’s net assets. Dora assigned the P500,000 fair value over
book value of the interest acquired to the following assets: Inventories, P100,000 (sold in the current
year); Building, P200,000 (4-year remaining life at January 41); Goodwill, P200,000. During the year,
Ogie reported net income of P800,000 and paid P200,000 dividends.

● Dora’s income from Ogie is ________.

90000

● The December 31 balance of the Investment in Ogie account is ________.

2030000

10. On July 1, 20x3, Amos Co. acquired 25% share of Blitz Co. On that date, the following assets had
carrying amounts different from their fair values in Blitz’s books:

ASSET CARRYING AMOUNT FAIR VALUE

Inventory 12,000 15,000

Machinery 24,000 30,000

All inventory were sold to third parties by June 31, 20x4. On July 1, 20x3, the machinery had a
remaining useful life of 3 years. The tax rate is 30%.

● The adjustment required to the investment in Blitz Co. account at June 30, 20x4 in relation to
the above assets is ________.
875

● The total adjustment required to the investment in associate account (20x3-20x5) as of June 30,
20x5 in relation to the above assets is ________.
1225

11. JOY Corporation acquired 25% of HOPE Corporation’s outstanding ordinary shares on October 1 for
P600,000. A summary of HOPE’s adjusted trial balances on this date and at December 31 follows (in
thousands):

December 31 October 1

Debits 500 250

Current assets 1,500 1,550

Plant assets-net 800 600

Expenses (including COGS) 200 200

 Dividends (paid in July) 3,000 2,600

Credits

Current Liabilities 300 200

Share Capital (no change during the year) 1,000 1,000

Retained Earnings, January 1 500 500

Sales 1,200 900

3,000 2,600

JOY uses the equity method of accounting. No information is available concerning the fair values of
HOPE’s assets and liabilities.

● JOY’s investment income from HOPE Corporation for the year ended December 31 is
________.
25000

● The balance of JOY’s investment in HOPE account on December 31 is ________.

625000

12. According to PFRS 11, a joint operation is a joint arrangement whereby the parties have joint control of
the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement.
True

13. According to PFRS 11, joint operation is an arrangement of which two or more parties have joint
control.
False

14. Joint arrangements may be entered into to manage risks involved in a project.
True

15. According to PFRS 11, a joint arrangement that is structured through a separate vehicle is a joint
venture.
False

16. For a joint venture, the rights pertain to the rights and obligations associated with individual assets and
liabilities, whereas with a joint operation, the rights and obligations pertain to the net assets.
False

17. According to PFRS 11, a party to a joint arrangement is an entity that participates in a joint
arrangement regardless of whether that entity has joint control of the arrangement.
True

18. Under the equity method of accounting for joint venture, the investment is initially measured at cost.
True
19. A and B entered into a contract to contribute cash to acquire a public utility jeepney (PUJ). A and B
shall have joint control over the operation of the PUJ and shall share equally in the revenues and
expenses. A and B are referred to as joint jeepney venturers.
False

20. A joint venturer accounts for its interest in a joint venture using the equity method.
True

21. The parties that share joint control in a joint operation are called joint operationists.
False

22. Joint arrangements may be entered into to provide the parties access to new technology or new
markets.
True

23. When an entity acquires interest in a joint operation in which the activity constitutes a business, the
entity shall account for its share as a business combination.
False

24. Under the equity method, dividends received from the investee are treated as dividend income.
False

25. Under the equity method, the fair value per share of the investment does not necessarily affect the
measurement of the investment at the end of the reporting period.
True

26. When an entity acquires an interest in a joint operation whose activity constitutes a business, the joint
operation shall account for the entity’s acquisition of its share as a business combination.
False

27. According to PFRS 11, a joint venture is a joint arrangement whereby the parties that have joint control
of the arrangement have rights to the net assets of the arrangement.
True

28. An arrangement qualifies as a joint arrangement under PFRS 11 only if all the parties in the
arrangement share joint control.
False

29. Joint control exists when no single party is in a position to control the activity unilaterally.
True

30. Northern Oil shares the use, in equal measure, of an oil pipeline with five other oil companies. The
contract states that the maintenance of the pipeline will be shared equally by all the parties. This
pipeline project is considered as a joint operation.
True
31. A and B entered into a contract to contribute cash to acquire a public utility jeepney (PUJ). A and B
shall have joint control over the operation of the PUJ and shall share equally in the revenues and
expenses. The contract between A and B is a joint venture.
False

32. 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.
True