Page | 1

Chapter 6
Joint Arrangements
PROBLEM 1: TRUE OR FALSE
1. TRUE
2. FALSE – only the parties that have joint control
3. TRUE
4. FALSE – joint operation
5. TRUE
6. FALSE – joint operation
7. FALSE – joint operators
8. FALSE
9. FALSE – equity method is applied to joint venturer’s
interest
10. FALSE – as return of capital (i.e., deduction to the
investment)

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. C
2. C
3. A
4. B
5. D
6. D
7. B
8. C
9. C
10. B
 Page | 2

PROBLEM 3: EXERCISES
1. Solutions:

I. No separate books

(a) Journal entries:

Books of A Books of B Books of C
a Joint operation Joint operation 420 Joint operation
. 420 Payable to A 420
Inventory 420 Payable to A
400 420
Cash
20
b Joint operation 400 Joint operation JO – Cash 400
. Payable to B 400 Payable to B
400 Cash 400
400
c Joint operation 100 Joint operation Joint operation 500
. Payable to C 100 JO – Cash
100 Payable to C 400
100 Accts. payable
100
d Receivable Receivable JO - Cash 1,600
. from C 1,600 from C Joint
Joint operation 1,600 operation
1,600 Joint 1,600
operation1,600
e Joint operation Joint operation Joint operation
. 110 110 110
Payable to C Payable to C Cash
110 110 110

(b) Joint operation profit or loss:

Joint Operation
(a) Mdse. contribution 42
of A 0
(c) Purchases 50 1,60 (e) Sales
0 0
(f) Expenses 11 6 Unsold
0 0 merchandise
63 Credit balance -
0 Profit

(c) Cash settlement:

Joint Operation –
A Joint Operation – B
(a) 420 (b) 400
 Page | 3

P/L (630 ÷ P/L (630

3) 210 ÷ 3) 210
Receipt 630 Receipt 610

Joint Operation –
C
(c) 100

(f) 110
P/L (630 ÷
3) 210 60 EI
Net
Receipt 360

Optional reconciliation:
JO-Cash (held
by C)
40
(b) 400 0 (c)
1,60
(d) 0
Balance before 1,6
distribution 00
63 Payment to
0 A
61 Payment to
0 B
Balance retained by
C 360

II. Separate books

(a) Journal entries:

Books of A Books of B Books of C
a Joint operation
. 420
Inventory
400
Cash
20
b Joint operation
. 400
Cash
400
c Joint operation
. 100
Accts. payable
100
 Page | 4

d
.
e Joint operation
. 110
Cash
110

JO Books
a Inventory 420
. A, Capital
420
b Cash 400
. B, Capital
400
c Purchases 500
. Cash
400
C, Capital
100
d Cash 1,600
. Sales
1,600
e Expenses 110
. C, Capital
110

(b) Joint operation profit or loss

1,60
Sales 0
COGS:
42
Inventory, beg 0
50
Purchases 0
92
TGAS 0
(60 (86
Inventory, end. ) 0)
Gross profit 740
(11
Expenses 0)
Profit before mgmt. fee
& bonus 630

(c) Cash settlement:

 Page | 5

A, B,
Capital Capital
420 (a) 400 (b)
P/L (630 ÷ P/L (630 ÷
210 210
3) 3)
63
Receipt 610 Receipt
0

C,
Capital
100 (c)
110 (e)
E P/L (630 ÷
I
60 210
3)
36 Net
0 Receipt

2. Solution:

Investment in Joint Venture

1,000,0
Initial investment 00
240,0 Sh. in loss (720K x 33
00 1/3%)
760,0
00 12/31/x1

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. B 1M own + (50% share in joint operation’s revenues

of 400K) = 1.2M

2. B
Solution:
Joint operation
Merchandise-A 8,500 20,400 Cash sales-C
Merchandise-B 7,000 4,200 Cash sales-C
Merchandise-B
Freight-in-C 200 1,210 (withdrawal)
 Page | 6

Unsold mdse. charged

Purchases-C 3,500 540 to A
Selling
550
expenses-C
Profit - excess
6,600
credit

3. A
Solution:
Joint operation - A
8,50
Merchandise - A 0
1,32 Unsold mdse. charged
540
P/L (6,600 x 20%) 0 to A
9,28
Receipt
0

4. C
Solution:
Joint Operation
Contributions (100 + 120 30
+ 80) 0
Expenses (paid from JO 24 ? Sales
cash) 0
36 Bal. before closing (100 +
0 120 - 580)

Joint Operation
Contributions (100 + 120 30
+ 80) 0
Expenses (paid from JO 24 90 Sales (squeeze)
cash) 0 0
36 Bal. before closing (100 +
0 120 - 580)

5. B
Solution:
Step 1: Compute for the profit or loss

Joint Operation
 Page | 7

Contributions (100 + 120 300

+ 80)
Expenses (paid from JO 240 900 Sales
cash)
60 Unsold inventory
42 Profit before salary and
0 bonus

Step 2: Allocate the profit or loss

Avera Difficu
Easy ge lt Total
Profit before salary and
bonus 420
Allocation:
1. Salary 6 6
2. Bonus (A) 54 54
3. Allocation of remaining profit
(420K – 6K – 54K) = 360K; 120
(360K ÷ 3) 120 120 360
As allocated 120 120 180 420

(A)

Profit before salary and 42

bonus 0
Difficult’s salary (6)
(54
Difficult’s bonus (B) )
Profit after salary and 36
bonus 0

(420 – 6) = 414 profit after salary but before bonus;

(B)

P
B = P - 1+
Br
B = 414 – (414 ÷ 1.15%) = 54

Step 3: Make T-account

Joint Operation –
Difficult
Contributi
on 80
P/L 180 60 Unsold inventory
Net
Receipt 200
 Page | 8

6. B
Solution:
Step 1: Compute for the profit or loss
Joint
operation
Purchases – A 100 120 Sales - A
Purchases – B 80 60 Sales - B
Expenses – A 200 10 Other income - B
Loss - debit
balance 190

Step 2: Allocate the profit or loss

Allocation to: A B Totals

Loss during the year (190)
Commission on purchases:
(10% x 100) – A 10 (10)
(10% x 80) – B 8 (8)
Commission on sales:
(20% x 120) – A 24 (24)
(20% x 60) – B 12 (12)
Loss to be allocated
equally (244)
Allocation: (244 ÷ 2) (122) (122) 244
Net share - as
allocated (88) (102) -

Step 3: Make T-accounts

Joint operation -
A
Collections on
Purchases 100 120 sales
Expenses 200 88 Net share in loss
Cash settlement -
receipt 92

Joint operation –
B
Purchases 80 102 Net share in loss
60 Collections on sales
 Page | 9

Collections on other
10 income
Cash settlement -
92 payment

7. D
Solution:

Joint
operation
Debit balance 5
Unsold merchandise
17 (squeeze)
Profit - credit balance (₱4
12 x 3)

8. A
Solution:
Joint
operation
Debit balance
(squeeze) 7
18 Unsold merchandise
Profit - credit
11 balance

9. D
Solution:

Step 1: Compute for the profit or loss

Joint Operation
Account with A 4 14 Account with C
Account with B 12 22 Unsold merchandise
20 Profit – credit balance

Step 2: Allocate the profit or loss

A B C Total
Profit 20
Allocation:
1. Bonus (20 x 10%) 2 2
3. Allocation of remaining profit
(20 – 2 = 18; (18 ÷ 3) 6 6 6 18
 Page | 10

As allocated 8 6 6 20

Step 3: Make T-accounts

Joint
Joint Operation – A Operation – B
Payable to Payable to 1
A 4 B 2
2 Unsold
P/L 8 2 inventory P/L 6
1 1
0 Payment Receipt 8

Joint Operation – C
1
4 Receivable from C
P/L 6

8 Payment

10. B
Solution:

Joint Operation
Account with C 6.5 2.5 Account with A
4 Account with B
0 Profit

Joint Operation – A Joint Operation – B

2. Receivable from Receivable
5 A 4 from B
P/
P/L 0 L 0
2.
5 Payment 4 Payment

Joint Operation – C
Payable to 6.
C 5
P/L 0
6.
Receipt 5
Page | 11
 Page | 12

PROBLEM 5: FOR CLASSROOM DISCUSSION

Case 1: No separate records are maintained

1. Requirements:
a. Prepare the journal entries for transactions (a) to (f).
b. Compute for the profit after management fee and
bonus.
c. Determine the cash settlements to the joint operators.

Solution:
Requirement (a): Journal entries

* No entries because the cash used on the purchase and freight-in

are already reflected in Small’s and Medium’s books under entries
(a) and (c).

** “Receivable from Large” is credited because, by paying the

expenses out of the JO-Cash, Large’s cash accountability is
reduced.

Requirement (b): Profit after management fee and

bonus
Joint Operation
(b) Mdse. contribution of 120
Med. K
(c) Purchases 180 900 (e) Sales
K K
(f) Expenses 240 60 Unsold
K K merchandise (1)
420 Profit before fee
K & bonus

(1)
(160K purchases + 20K freight-in) x 1/3 = 60K

Profit before management fee and 420,0

bonus 00
 Page | 13

(6,000
Large's management fee )
(54,00
Large's bonus (2) 0)
Profit after management fee 360,0
and bonus 00

(420,000 – 6,000) = 414,000 profit after management fee

(2)

but before bonus;

P
B = P - 1+
Br
B = 414,000 – (414,000 ÷ 1.15%) = 54,000

Shortcut: (420,000 – 6,000) = 414,000 ÷ 115% = 360,000

Requirement (c): Cash settlement

Step 1: Allocate the profit or loss

Sma Mediu Larg
ll m e Total
Profit before salary and
bonus 420K
Allocation:
1. Salary 6K 6K
2. Bonus (see requirement ‘b’) 54K 54K
3. Allocation of remaining profit
(420K – 6K – 54K) = 360K; 120K
(360K ÷ 3) 120K 120K 360K
As allocated 120K 120K 180K 420K

Step 2: Make T-accounts

Joint Operation –
Small Joint Operation – Medium
Contributi 100 Contributi
on K on 120K
120
P/L K P/L 120K
220
Receipt K Receipt 240K

Joint Operation –
Large
Contributi 80K
 Page | 14

on
180 60 Unsold inventory (see requirement
P/L K K ‘b’)
200
Receipt K

❖ Checking:
JO – Cash
Cash contribution of 100 180
Small K K Purchases & freight-in
Cash contribution of 80 240
Large K K Expenses paid out of JO-Cash
900 220
Sales K K Cash settlement to Small
240
K Cash settlement to Medium
200
K Balance retained by Large

Alternative solution:
Payable to S (in M’s & L’s
books) Payable to M (in S’s & L’s books)
100K (a) 120K (b)
120K P/L 120K P/L
220 Recei Recei
K pt 240K pt

Payable to L (in S’s & L’s Receivable from L (in S’s & M’s
books) books)
80K (c) (e) 900K
E
I 60K 180K P/L 240K (f)
Receip Payme
200K t nt 660K

* 660K payment – 200K receipt = 460K payment to Small

and Medium (i.e., 220K and 240K, respectively)

❖ In the settlement, Large pays Small ₱220,000 and

Medium ₱240,000, and retains the remaining
₱200,000 JO-Cash.

Case 2: Separate records are maintained

2. Requirements:
a. Prepare the journal entries for transactions (a) to (f).
 Page | 15

b. Compute for the profit after management fee and

bonus.
c. Determine the cash settlements to the joint operators.

Requirement (a): Journal entries

Requirement (b): Profit after management fee and

bonus

Sales 900,000
COGS:
Inventory, beg. 120,000
Purchases & freight-in 180,000
TGAS 300,000
Invty., end. (160K + 20K) x
1/3 (60,000) (240,000)
Gross profit 660,000
Expenses (240,000)
Profit before mgmt. fee &
bonus 420,000

Profit before management fee and 420,0

bonus 00
(6,000
Large's management fee )
(54,00
Large's bonus (2) 0)
Profit after management fee 360,0
and bonus 00

(420,000 – 6,000) = 414,000 profit after management fee

(2)

but before bonus;

 Page | 16

P
B = P -1+
Br
B = 414,000 – (414,000 ÷ 1.15%) = 54,000

Requirement (c): Cash settlement

Joint Operation –
Small Joint Operation – Medium
Contributi 100 Contributi
on K on 120K
120
P/L K P/L 120K
220
Receipt K Receipt 240K

Joint Operation –
Large
Contributi
on 80K
180 60 Unsold inventory (see requirement
P/L K K ‘b’)
200
Receipt K

Sma Mediu Larg

PL: ll m e Total
Profit before salary and
bonus 420K
Allocation:
1. Salary 6K 6K
2. Bonus (see requirement ‘b’) 54K 54K
3. Allocation of remaining profit
(420K – 6K – 54K) = 360K; 120K
(360K ÷ 3) 120K 120K 360K
As allocated 120K 120K 180K 420K

Alternative solution:
Small, Capital Medium, Capital
100K (a) 120K (b)
120K P/L 120K P/L
220 Recei Recei
K pt 240K pt
 Page | 17

Large, Capital
80K (c)
E
I 60K 180K P/L
200 Recei
K pt

3. Solution:

Investment in Joint Venture

220,0
Initial investment 00
Sh. in profit (800K x 320,0 200,00 Dividends (500K x
40%) 00 0 40%)

340,0
00 12/31/x1
 Page | 18

PROBLEM 6: MULTIPLE CHOICE – PFRS FOR SMEs

1. D
2. A
3. B
4. D
5. C
6. B
7. D
Solution:
20x1 20x2 20x3
Cost (100K + 1K transaction
cost) 101,000 101,000 101,000
Fair value 102,000 110,000 90,000
Costs to sell (4,000) (4,000) (4,000)
Fair value less costs to sell 98,000 106,000 86,000
Measurement - lower
amount 98,000 101,000 86,000

8. E – at the year-end fair values given in the problem,

excluding costs to sell.

9. C
10. D