MODULE 3 JOINT ARRANGEMENT

Week 3-4

INTRODUCTION
This module demonstrates an understanding about joint arrangement, essential
elements of joint arrangement, types of joint arrangement, accounting for joint operation
transactions, and relevant provisions of the PRFS for SMEs as well as Section 15 Investme nt
in Joint Ventures.

Related standards:
PFRS 11 Joint Arrangements
PAS 28 Investments in Associates and Joint Ventures
Section 15 of the PFRS for SMEs

INTENDED LEARNING OUTCOMES

1. Define a joint arrangement and state its characteristics.
2. Difference between a joint operation and joint venture.
3. Account for joint operations.
4. Describe the accounting requirements for joint ventures

LEARNING CONTENT
Definition of Joint arrangement
Joint arrangement is "an arrangement of which two or more parties have joint
control." (PFRS 11.4)

Essential elements in the definition of joint arrangement:

a. Contractual arrangement
b. Joint control

Contractual arrangement
A contractual agreement for the sharing of joint control over an investee distinguishes an
interest in a joint arrangement from other types of investments, such as investment in equity
securities measured at fair value (PFRS 9), investment in associate (PAS 28), and investment
in subsidiary (PFRS 3 and PFRS10). PFRS 11 is not applicable without such an agreement.
The contractual arrangement may be evidenced in various ways, for example, by a
contract, by minutes of discussions between the parties, or by inclusion in the articles or by-
laws of the joint arrangement. Whatever its form, the contractual arrangement is usually in
writing and deals with matters such as:
a. the activity, duration and reporting obligations of the joint arrangement;
b. the appointment of the board of directors (or its equivalent) and the voting rights of
the parties;
c. capital contributions by the parties; and
d. the sharing by the parties of the output, income, expenses or results of the joint
arrangement.
The contractual arrangement establishes joint control over the joint arrangement. Such a
requirement ensures that no single party is in a position to control the activity unilaterally.

Joint control
Joint control is "the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require the unanimous consent of the
parties sharing control." (PFRS 11.7)

In contrast with significant influence and control, an investor obtains joint control over
an investee through a contractual agreement with fellow investors. Financial arid operating
decisions relating to the joint arrangement's activities require the consent of each of the
parties sharing joint control. No single party obtains leverage over another in respect of
voting rights over financial and operating decisions.

Contrast joint control with the following:

● Significant influence is the power to participate in the financial and operating
policy decisions of an investee but is not control or joint control over those
policies.
● Control is the power to govern the financial and operating policies of an investee
so as to obtain benefits from it.

Joint control exists when all the parties sharing joint control over the arrangement act
collectively (together) in directing the activities that significantly affect the returns of the
arrangement.
An arrangement is considered a joint arrangement even if not all of the parties to the
arrangement have joint control. It is sufficient that at least two of those parties share joint
control.
PFRS 11 distinguishes between:
a. parties that have joint control of a joint arrangement (referred to as joint operators
or joint venturers — see discussion below), and
b. parties that participate in, but do not have joint control of, a joint arrangement.
 ⮚ 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." (PFRS 11.Appendix
A)

Nature of Type of Interest in Standard Accounting

relationship investment voting rights
with investee of investee
a. Regular FVPL or FVOCI Less than 20% PFRS 9 Fair value
investor asset

b. Significant Investment in 20% to 50% PAS 28 Equity

influence associate method*

c. Control Investment in 51% to 100& PFRS 3 and Consolidation

subsidiary PFRS 10
d. Joint a. Joint PFRS 11 and Recognize own
control operation other assets,
relevant liabilities
PFRS revenue and
expenses plus
Contractually share in the
agreed assets,
liabilities
revenues and
expenses of the
joint
b. Joint operation.
venture PFRS 11 and
PAS 28 Equity method
f air value through prof it or loss
Fair Value through Other Comprehensive Income (FVOCI)
IFRS 9 is an International Financial Reporting Standard (IFRS) published by the International Accounting Standards Board (IASB). It
addresses the accounting for financial instruments.
PAS 28 prescribes the accounting for investments in associate and the application of the equity method to investments in
associates and joint ventures. Investments in associates. Associates is “an entity over which the investor has significant influence.”

However, in the separate financial statements, investments in associates, subsidiaries and

joint ventures are accounted for either: (a) at cost, (b) at fair value in accordance with PFRS
9, or (c) using the equality method.

Examples: (PFRS 11.B28)

Case 1
A, B and C has an arrangement whereby A has 50% voting rights, B has 30% and C has
20% . the parties agreed that at least 75% of the voting rights are required to make
decisions about the relevant activities of the arrangement
Analysis:
The requirement that at least 75% voting rights is needed to make a decision imply that A
and B have joint control over the arrangement because decisions cannot be made without
both A and B agreeing.

Case 2:
A, B, and C has an arrangement whereby A has 50% of the voting rights, B has 25% and
C has 25%. The parties agreed that at least 75% of the voting rights are required to
make decisions about the relevant activities of the arrangement.

Analysis:
A, B and C collectively control the arrangement because to reach the 75% vote either A and
B or A and C should agree. To be a joint arrangement, the parties would need to specify
which combination of the parties is required to agree unanimously on decisions about the
relevant activities of the arrangement.

Case 3:
A and B each has 35% of the voting of an arrangement; the remaining 30% is widely
dispersed. Decision about relevant activities require a majority of the voting rights.

Analysis:
A and B have joint control only if the contractual arrangement specifies that decisions
require both A and B agreeing. This is because a majority vote can be reached either in the
combination of A and other parties or B and other parties, i.e., A's 35% + a t least 16% held
by other investors or B's 35% + at least 16% held by other investors. ('Majority is 51% or
more)

Types of joint arrangement

An entity is required to determine the type of joint arrangement in which it is involved. The
types of joint arrangement are:
a. Joint operation — is "a joint arrangement whereby the parties that have joint control
of the arrangement have rights to the assets and obligations for the liabilities of the
arrangement. Those parties are called joint operators.” (PFRS 11.15)
b. 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. Those parties
are called joint venturers." (PFRS 11.16)
An entity applies judgment when determining the type of joint arrangement in which it is
involved by:

a. Considering its rights and obligations arising from the arrangement.

b. Assessing its rights and obligations in relation to the:
i. structure and legal form of the arrangement,
 ii. terms of the contractual agreement, and
iii. other facts and circumstances.

Rights and obligations arising from the arrangement

If the contractual arrangement confers to the parties that have joint control rights to the
assets and obligations for the liabilities of the joint arrangement, the joint arrangement is
a joint operation. The parties that have joint control are called joint operators.
If the contractual arrangement confers to the parties have joint control rights to the net
assets of the joint arrangement, the joint arrangement is a joint venture. The parties that
have control are called joint venturers.

Assessment of rights and obligations

Structure and legal form of the arrangement
a. A joint arrangement that is not structured through a separate vehicle is a joint
operation.
b. A joint arrangement in which the assets and liabilities relating to the arrangement are
held in a separate vehicle can be either a joint venture or a joint operation.

⮚ Separate vehicle — "a separately identifiable financial structure, including separate

legal entities or entities recognized by statute, regardless of whether those entities
have a legal personality." (PFRS 11.Appendix A)

Examples:
Case 1:
A, B, and C, each engaged in the extraction of oil, agreed to acquired and jointly operate
an oil pipeline. The parties will share equally in the pipeline’s acquisition and operating
costs.

Analysis:
The joint arrangement is a joint operation because it confers to the Parties rights to the
assets and obligations for the liabilities of the joint arrangement.

Case 2:
A and B agreed to jointly manufacture and distribute a particular product. Each party
will carry out different parts of the manufacturing process, bearing its own costs but
will have an equal share on the revenues.

Analysis:
The joint arrangement is a joint operation because it is not Structured through a separate
vehicle (i.e., each party carries out a specific task using its own existing business).
 Case 3:
A and B entered into a joint arrangement to form Alphabets Corporation, which will
manufacture materials required in A’s and B’s individual manufacturing processes. Each
party will have 50% ownership interest in Alphabets Corporation. Alphabets will have its
own assets, liabilities, equity, income and expenses.

Analysis:
Alphabets Corporation (the 'separate vehicle') is a legal entity, separate and distinct from its
owners. Accordingly, Alphabets' assets and liabilities are its own, rather than of its owners.
This indicates that the joint arrangement confers A and B rights to the net assets of
Alphabets, as opposed to specific assets and liabilities. The joint arrangement, therefore, is a
joint venture.
However A and B can modify the features of the separate vehicle such that A and B will
have rights to the assets and obligations for the liabilities of the separate vehicle. Such
modifications can cause an arrangement to be a joint operation.
(See next case.)
Terms of the contractual agreement and Other facts and circumstances
Case 4 (adapted from PFRS 11.B32
Refers to case 3 above (Alphabets Corporation). In addition, it was further agreed that:
a. A and B shall purchased all of Alphabet’s output in the ratio od 50:50. Alphabets
cannot sell to third parties without A and B;s approval.
b. Alphabets’ pricing policy is designed to cover only the operating costs. Thus
Alphabets is intended to operate at a break-even level.

Analysis:
The exclusivity of Alphabets' output to A and B reflects the dependence of Alphabets on A
and B in generating cash flows. Therefore, A and B have an obligation to fund the settlement
of Alphabets' liabilities. Moreover, that exclusivity evidences A and B's rights to all the
economic benefits of the assets of Alphabets. These additional facts and circumstances
indicate that the arrangement is a joint operation.

Case 5: (Adapted from PFRS 11.B32)

See Cases 3 & 4. A and B change the contractual arrangement so that Alphabets is able
to sell its output to third parties, resulting in Alphabets assuming demand, inventory
and credit risks.

Analysis:
The change in the facts and circumstances requires a reassessment of the classification of
the joint arrangement. The change indicates that the arrangement is a joint venture.
Joint operations
A joint operator recognizes its own. assets, liabilities, income and expenses plus its share
in the joint operation's assets, liabilities, income and expenses. These items are accounted
for under other PFRSs applicable to the particular assets, liabilities, income and expenses.

Illustration 1:
A and B agreed to combine their operations, resources and expertise to jointly manufacture
and sell a particular product. The joint operators will individually carry out different parts
of the manufacturing process, bearing their own costs but will share equally in the
revenues. The joint operation was complete, and thus terminated, during the year. The
following were the transactions:
● A had sales of P200 and expenses of PIOO.
● B had sales of P150 and expenses of P80.

⮚ Financial reporting:
The individual statement of comprehensive income of the entities will show the following:
Entity A Entity B
Sales [(200 + 150) x 50%}] 175 Sales [(200 + 150) x 50%}] 175
Expenses (100) Expenses (80)
Profit 75 Profit 95

Illustration 2:
A and B agreed to acquire and jointly operate an oil each will use to transport its own oil. The
joint operators will share equally in the pipeline's acquisition and operating costs. The
acquisition cost was P100M and the operating costs were P30M. A and B had total sales of
P120M and P150M, respectively.
⮚ Financial reporting:
The individual financial statement of the entities will show the following:
Entity A Entity B
Statement of financial position Statement of financial position
PPE (oil pipeline) 100M x 50% 50M PPE (oil pipeline) 100M x 50% 50M

Statement of profit or loss Statement of profit or loss

Sale 120M Sale 150M
Expenses (15M ) Expenses (15M )
Profit 105M Profit 135M

Accounting for joint operation transactions

Separate books of accounts (i.e., journal and ledger) may or may not be used for a joint
operation.
No separate records are maintained
Separate books of accounts may not be used most especially when the joint operation is
relatively short-lived.
When separate records are not maintained, joint operation transactions involving income
and expenses are recorded in each of the joint operators' individual books using the
"Joint Operation " account (which is like the 'income summary' account).

Joint Operation
● Merchandise contribution xx xx Merchandise withdrawals

● Purchased & freight- in xx xx Purchase returns & discount

● Sales return & discount xx xx Sales and other income

● Expenses xx xx Unsold merchandise, if any

Nominal accounts with normal debits balances are placed on the debit side; those with
normal credit balances are placed on the credit side. A credit balance in the T- account
represent profit; a debit balance represent loss.
Unsold merchandise (ending inventory) is placed on the credit side to reflect ‘cost off
goods sold’ ( i.e, mdse. Contribution/beg. + purchased + freight-in on the debit side less
ending inventory on the credit side equals cost of goods sold).

In addition, personal accounts are used. A personal account is a receivable from, or a

payable to, a joint operator.
Example: A and B's joint operation has no separate records. To record the transactions of
the joint operation, A and B will each open a Joint Operation account in their respective
books. In addition, A will open a "Receivable from B" and/or a "Payable to B " account. B will
do the same his books. Alternatively, account titles such as "Account with A" or "Account
with B" or simply "A co." or "B Co. " may also be used. A credit balance in such account
represents a payable; a debit balance represents a receivable. At any point of time, the Joint
Operation accounts in A's and B's books should tally. If not, reconciliation shall be made.
One or more joint operators may act as the manager who will oversee the day-to-day
operations of the joint operation. Managers are usually paid a fee for such duties.
Management fees are treated as expense by the joint operation and as income by the
manager.
The manager records any asset (other than merchandise) and any liability he
receives/incurs on behalf of the joint operation using regular accounts but labeled as 'JO',
e.g., "Joint operation Cash" ('JO-Cash'), 'JO-accounts receivable', and 'JO-accounts payable',
The manager maintains these accounts in his 'own books in addition to the Joint Operation
and personal accounts.
The Joint Operation, personal accounts, and other JO accounts are maintained alongside
a joint operator’s regular accounts, but these are closed when the joint operator prepares its
general purpose financial statements.
Illustration : Joint operation profit & Cash settlement
A, B and C’s joint operation had the following transaction;
a. A contributed cash P100 and inventory costing P200
b. B contributed inventory costing P400. B paid freight of P20 on the transfer;
c. C made purchased of P100 using A’s cash contribution.
d. C paid expenses of P200 using his own cash.
e. C made total sales of P800. All inventories were sold expect one-half of those
contributed by B. the unsold inventory was charged to C on the settlement of the joint
operation.

The joint operators agreed on the following:

a. C, the appointed manager, is entitled to a salary of P30 and a bonus of 25% of profit
after salaty and bonus.
b. Interest of 10% is allowed on A’s and B’s capital contributions.
c. Any remaining profit or loss is shared equally,

Solutions:
Requirements (a): Profit or loss after salary and bonus

Joint operation
Mdse. Contribution of A & B (a) 620
Purchased 100 800 Sales
Expenses 200 210 Unsold merchandise 9b0
90 Profit before salary and bonus
(a) A: 200+ B: 400 + 20 freight = 620
(b) (B: 400 + 20 freight) x 1/2 = 210

Profit before salary and bonus 90

C’s salary (30)
C’s bonus ( c) (12)
Profit after salary and bonus 48

● Alternative solution: (90 — 30) + 125% = 48

Recall that a joint operation recognizes management fees as expenses. Thus even if the
requirement in the problem is stated differently, say "profit for the year,' the answer would
still be P48. The interests on capital contributions, however, are used only for P/L allocation
and are not expenses. Why?......because capital contributions are considered equity, only
interests on liabilities are recognized as interest expenses.

Requirement (b): Cash settlement

Step 1: allocate the profit or loss (P/L)
A B C Total
Profit before salary and bonus 90
Allocation
1. Salary 30 30
2. Bonus (see requirement ‘a’ 12 12
3. Interest (300 x 10%) and (420 x 30 42 72
10%)
4. Allocation of remaining profit (8) (8) (8) (24)
(90 – 30 – 12 – 72) = -24; (-24/3)
As allocated 22 34 34 90

Interest in Joint Operation whose activity constitutes a business

An entity that acquires an interest in a joint operation whose activity constitutes a business
shall account for its share as a business combination.
A business "is an integrated set of activities and assets that is capable of being conducted
and managed for the purpose of providing a return in the form of dividends, lower costs or
other economic benefits directly to investors or other owners, members or participants."
(PFRS 3.Appendix A)

Financial Reporting:

C Co.'s statement of financial position will include C Co.'s shares in JO X's assets and liabilities
and the computed goodwill.

Joint ventures
An entity first applies PFRS 11 to determine the type of arrangement it is involved in. If
the arrangement is a joint venture, the entity recognizes its interest as an investment and
account for it using the equity method under PAS 28 Investments in Associates and Joint
Ventures.
Under the equity method, the investment is initially recognized at cost and subsequently
adjusted for the investor's share in the investee's changes in the equity, such as (1) profit
or loss, (2) other comprehensive income, (3) dividends, and (4) results of discontinued
operations.

Illustration: Equity method

On Jan. 1, 20x1, ABC Co. entered into a joint arrangement classified as a joint venture. ABC
acquired its 30% interest in Joint Venture, Inc. (JV, Inc.) for P500,000. During the year, JV,
Inc. reported P1,000,000 profit and P200,000 other comprehensive income, i.e., a total
comprehensive income of 1,200,000 JV, Inc, declared dividends of P600,000.

Requirement: Compute for the carrying amount of ABC's investment on Dec. 31, 20x1?
Solution:

The equity method is discussed exhaustively in Intermediate Accounting Part 1B. The
various illustrations in that book also apply to investments in joint ventures.

Presentation in statement of financial position

Investments accounted for under the equity method (i.e., investments in associates and joint
ventures) are presented in the statement of financial position as non-current assets, except
when they are classified as held for sale under PFRS 5 Non-current Assets Held for Sale and
Discontinued Operations.

MODULE SUMMARY
● The essential elements of a joint arrangement are (1) contractual arrangement and
(2) joint control.
● Joint control is the contractually agreed sharing of control, such that decisions
require the unanimous consent of the parties sharing control.
● A joint arrangement can exist even if not all of the parties have joint control. It is
sufficient that at least two parties have joint control.
● A joint arrangement is either (a) joint operation or (b) joint venture.
● A joint arrangement is a joint operation if the parties with joint control have rights to
the assets and obligations for the liabilities of the arrangement.
● A joint arrangement is a joint venture if the parties with joint control have rights to
the net assets of the arrangement.
 ● Separate records may or may not be used for a joint operation.
- If no separate records are maintained, the joint operation transactions are recorded
in each of the joint operators' individual books.
- If separate records are maintained, the joint operation transactions are recorded in
the separate records in the regular manner. The joint operators record only their own
transactions in their respective books.
Joint Operation
● Merchandise contributions ● Merchandise withdrawals
xx xx
● Purchases & freight in ● Purchases & discounts
xx xx
● Sales returns & discounts ● Sales returns & other income
xx xx
● Expenses ● Unsold merchandise, if any
xx xx

● A joint venture accounts for its interest in a joint venture similar to an investment in
associate, i.e., using the equity method

Relevant provisions of the PFRS for SMEs

Section 15 Investments in Joint Ventures
A joint venture is ''a contractual arrangement whereby two or more parties undertake an
economic activity that is subject to joint control." (PFRS for SMEs 15.13)
An entity considers any potential voting rights that are currently exercisable and
held by the entity and/or its co-venturers when determining the existence of joint control.

A joint venture is classified in one of the following:

a. Jointly controlled operation
b. Jointly controlled asset
c. Jointly controlled entity

Jointly controlled operations

A jointly controlled operation is one whereby:
a. The joint venture's operation involves the use of the venturers’ assets and
other resources rather than the establishment of a separate entity.
b. Each venturer uses its own assets and incurs its own liabilities and expenses,
but takes a share in the joint venture's income and expenses incurred in
common.
c. The joint venture's activities may be carried out by the venturer’s employees
alongside the venturer's similar activities.
A venturer recognizes the assets it controls, the liabilitie and expenses that it incurs
and its share in the joint venture’s income,
Jointly controlled assets
A jointly controlled asset involves joint ownership over the assets contributed to, or acquired
for the purpose of, the joint venture and dedicated to the purposes of the joint venture, rather
than the establishment of a separate entity.
A venturer recognizes the assets that it controls plus its share in the jointly
controlled assets classified according the nature of the assets, the liabilities and expenses
it incurs plus its share in any liabilities and expenses incurred jointly with the other
venturers, and its share in the joint venture's income or output.

Jointly controlled entities

A jointly controlled entity involves the establishment of a separate entity (e.g., a corporation)
in which each venturer has an interest. The separate entity operates in the same way as other
entities, except that a contractual arrangement between the venturers establishes joint
control over the economic activity of the entity.
A venturer accounts for all its investments in jointly controlled entities using one of
the following:
a. Cost model
b. Equity method
c. Fair value model

Under the Cost model, the investment is measured at cost, including transaction costs, and
subsequently tested for impairment (e.g., by comparing the carrying amount and fair value
less costs to sell). Any impairment loss.is recognized in profit or loss. Gain on reversal of
impairment is recognized only up to the extent of previously recognized impairment losses.
Investments measured under the Equity method are also tested for impairment.
Under the Fair value model, the investment is initially and subsequently measured
at fair value, without deductions for transaction costs and estimated costs to sell. Changes
in fair values are recognized in profit or loss.

Transactions between a venture and a joint venture

a. sells to a joint venture recognizes only the portion of the gain or loss that is
attributable to the interests of the other venturers.
b. Purchases from a joint venture recognizes gain or loss only when it resells the
purchased assets to an independent party.

In both cases, a venturer recognizes immediately a loss in full if it represents an

impairment loss.

Investor does not have joint control

An investor that does not have joint control accounts for its investment at (a) FVPL, (b) cost
less impairment, or (c) as investment in associate, if it has significant influence.

Notable differences between the provisions of the full PFRS and the PFRS fo r SMEs:

Full PFRSs PFRS for SMEs

Definition of terms
PFRS 11 uses the term joint arrangement PFRS for SMEs uses the term joint venture
and classifies it into: and classifies it into:
a. Joint operation a. Jointly controlled operation
b. Joint venture b. Jointly controlled asset
c. Jointly controlled entity
Choice of accounting policy on investments in joint venture
PAS 28 required the use of the equity PFRS for SMEs provides the following
method in accounting for investments in choices for jointly controlled entities:
joint ventures. a. Cost model
However, PAS 27 provides the following b. Equity method
choices in separate financial statements: c. Fair value method
a. Cost
b. Equity method
c. Fair value
Assessment
MODULE ACTIVTY/ASSESSMENT

MULTIPLE CHOICE: THEORY

1. An arrangement of which two or more parties have joint control.

a. j operation c. joint arrangement
b. joint venture d. elbow joint
2. The contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require the unanimous consent of the
parties sharing control.
a. significant influence c. control
b. joint control d. contractual control
3. A joint arrangement whereby the parties that have joint control of the arrangement
have rights to the net assets of the arrangement.
a. joint operation c. joint arrangement
b. joint venture d. elbow joint
4. A joint arrangement whereby the parties that have joint control of the arrangement
have rights to the assets, and obligations for the liabilities, relating to the
arrangement.
a. joint operation c. joint arrangement
b. joint venture d. elbow joint

5. A party to a joint operation that has joint control of that joint operation.
a. joint operationist c. joint arranger
b. joint venturer d. joint operator

6. A party to a joint venture that has joint control of that joint venture.
a. joint venturist c. joint arrangementor
b. joint operationer d. joint venturer

7. According to PFRS 11, it is an entity that participates in a joint arrangement,

regardless of whether that entity has joint control of the arrangement.
a. joint arranger c. minority interest
b. party to a joint arrangement d. participating cat

8. According to PFRS 11, it is a separately identifiable financial structure, including

separate legal entities or entities recognized by statute, regardless of whether those
entities have a legal personality.
a. separate vehicle c. special purpose vehicle
 b. special purpose entity d. public utility vehicle

9. In a joint arrangement, which of the following establishes joint control by the

parties?
a. mutual sharing of control c. contractual arrangement
b. ownership interest of more than 20% d. stock certificate

10. A joint arrangement in which the assets and liabilities relating to the arrangement
are held in a separate vehicle.
a. joint operation c. joint arrangement
b. joint venture d. can be either a or b

MULTIPLE CHOICE: PROBLEM SOLVING

Use the following information for the next two questions:
The following are the transactions of a joint operation formed by A, B and C during a
year:
● A contributed cash of ₱400 and merchandise costing ₱800.
● B contributed merchandise costing ₱1,600. Freight-in paid by B is ₱80.
● C made purchases amounting to ₱400 using the cash contributed by A.
● C paid expenses of ₱800 using its own cash.
● C made total sales of ₱3,200. All the merchandise was sold except one-half of those
contributed by B.
● C is appointed as the manager of the joint operation. As compensation, C is entitled
to a ₱120 salary plus bonus of 25% on profit after salary and bonus.
● Interest of 10% per annum is allowed to A and B’s capital contributions.
● C is charged for the cost of any unsold inventory. Profit or loss after necessary
adjustments shall be divided equally.

1. How much is the profit or loss after salaries but before bonus of the joint
operation?
a. 192 b. 240 c. 360 d. 420

2. On the cash settlement between the joint operators,

a. A pays ₱1,288 c. C receives ₱96
b. B pays ₱1,816 d. All of these

Use the following information for the next two questions:

A and B formed a joint operation. The following were the transactions during the year:

A B
Total purchases 400 320
 Total sales 960 720
Expenses paid 800
Other income 40

The joint operation was completed at the end of the year. Each joint operator is
entitled to a 10% commission on its purchases and a 20% commission on its sales.
Any remaining profit or loss is divided equally.

3. How much is the profit (loss) of the joint operation?

a. 200,000 b. (200,000) c. 180,000 d. (180,000)

4. On the cash settlement between the joint operators,

a. A pays B ₱368 c. A pays B ₱428
b. B pays A ₱368 d. B pays A ₱428

Use the following information for the next two questions:

A and B formed a joint operation. The following were the transactions during the year:
A B

Total purchases 400 320

Total sales 480 240
Expenses paid 800
Other income 40

The joint operation was completed at the end of the year. Each joint operator is
entitled to a 10% commission on its purchases and a 20% commission on its sales.
Any remaining profit or loss is divided equally.

5. How much is the profit (loss) of the joint operation?

a. 760 b. (760) c. 840 d. (840)

6. On the cash settlement between the joint operators,

a. A pays B ₱368 c. A pays B ₱428
b. B pays A ₱368 d. B pays A ₱428

7. A, B, and C formed a joint operation which was completed during the year. A is the
appointed manager who will be entitled to a 10% bonus of profit before bonus.
Profit or loss after bonus to A is divided equally among the joint operators. The
accounts of B and C show the following balances:
 Books of
B Books of C
Account with A 16 Cr. 16 Cr.
Account with B 48 Cr.
Account with C 56 Dr.

Unsold merchandise was charged to A at a cost of ₱88. On the cash settlement

between the joint operators,
a. A receives ₱72; C pays ₱32 c. B receives ₱72; C pays ₱32
b. B pays ₱72; A pays ₱40 d. None of these

8. A, B, and C formed a joint operation which was completed during the year. The
accounts of the joint operators show the following balances:

Books of A Books of B Books of C

Account with A - 10 Dr. 10 Dr.

Account with B 16 Dr. - 16 Dr.
Account with C 26 Cr. 26 Cr.

On the cash settlement between the joint operators,

a. A receives ₱26; C pays ₱16 c. C receives ₱16; A pays ₱10
b. B pays ₱16; A pays ₱10 d. None of these

9. A, B, and C formed a joint operation. Profit or loss shall be divided equally. The
following were taken from the joint operation’s books:

Debit Credit

JO – Cash 80
Joint operation 20
B, Capital 60
C, Capital 40

A’s share in the joint operation’s profit is ₱16. A agreed to be charged for the unsold
merchandise as of year-end. How much is the cost of unsold merchandise charged to
A?
a. 56 b. 62 c. 68 d. 72
10. A, B, and C formed a joint operation. The following were taken from the joint
operation’s books:

Debit Credit
JO – Cash 80
B, Capital 60
C, Capital 88

The cost of unsold inventory is ₱72. The joint operation’s profit is ₱44. How much is
the balance of the joint operation account before distribution of profit?
a. 28 b. 116 c. 56 d. 0

_END OF MODULE_