Advanced Accounting Part 1 Dayag 2015 Chapter 11

Chapter 11
Problem I
1.
Oil Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000,000
Oil Pipeline operating expenses (30% x P12,000,000). . . . . . . . . . . . . . 3,600,000

Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,940,000
Revenue from Oil Pipeline (30% x P19,800,000) . . . . . . . . . . . . . . . . 5,940,000
Amortization expense pipeline (P18,000,000/20 years). . . . . . . . . . . 900,000

Accumulated depreciation oil pipeline. . . . . . . . . . . . . . . . . . . . . 900,000
Thus, the share of X Inc. in net income of the joint operations would be as follows:
Proportionate Total (100%
Share (30%) based)
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 5,940,000 P19,800,000
Less: Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000 12,000,000
Amortization expense: P18,000,000 ( 30%) / 20 years. . . . . . . . 900,000
P60,000,000 (100%) / 20 years. . . . . . . . _3,000,000
Net Income of the Joint Operation. . . . . . . . . . . . . . . . . . . . . . . . . . . . P 4,800,000
Multiplied by: 30% interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __________ ______30%
Net Income of X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 1,440,000 P 1,440,000
Problem II
1. The following journal entries would be recorded:
Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000,000
Steel Pipes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,200,000
Gain on steel pipes (70%* of gain). . . . . . . . . . . . . . . . . . . . . . . . . . . 3,360,000
Unrealized gain contra account (30% of gain, P4,800,000) . . . . 1,440,000
The following should be observed in relation to the above journal entry:

X should recognize a gain of P3,360,000 [70% x (P18,000,000 P13,200,000)]*
A portion of the gain can be recognized on the contribution of assets to a joint
operation.
PFRS 11 indicates the following:
When an entity enters into a transaction with a joint operation in which it is a joint
operator, such as a sale or contribution of assets, it is conducting the transaction with the
other parties to the joint operation and, as such, the joint operator shall recognize gains
and losses resulting from such a transaction only to the *extent of the other parties
interests in the joint operation. When such transactions provide evidence of a reduction
in the net realizable value of the assets to be sold or contributed to the joint operation, or
of an impairment loss of those assets, those losses shall be recognized fully by the joint
operator.
A gain can be recognized when the significant risks and rewards have been transferred.
Pipeline operating expenses (30% x P12,000,000). . . . . . . . . . . . . . . . . 3,600,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,940,000
Revenue from Pipeline (30% x P19,800,000) . . . . . . . . . . . . . . . . . . . 5,940,000
Amortization expense pipeline (P18,000,000/20 years). . . . . . . . . . . 900,000
Accumulated depreciation - pipeline. . . . . . . . . . . . . . . . . . . . . . . 900,000
Unrealized gain contra account (P1,440,000/ 20 years). . . . . . . . . . 72,000

Amortization expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000

The joint operators own interest in the gain is recognized over the life of the asset.
The unrealized gain is a contra account to the pipeline account; it should not be
reported as a deferred gain on the liability side of the balance sheet. When X Inc.,
prepares a balance sheet, the unrealized gain will be offset against the pipeline such
that the pipelines net cost is P16,560,000 (P18,000,000 P1,440,000). As the net cost of the
pipeline is being amortized, the unrealized gain account is also being amortized. In
effect, the unrealized gain is being brought into income over the life of the pipeline. As
the pipeline is being used to generate revenue on transactions with outsiders, the
operators own share of the unrealized gain is being recognized in net income. This is
similar to what happened in Chapter 18 (Intercompany Sales of Property and
Equipment) of Volume II, when the unrealized profits from an intercompany sale of a
depreciable asset were realized over the life of the depreciable asset.
Thus, the share of X Inc. in net income of the joint operation would be as follows:
Revenue (30% x P19,800,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 5,940,000
Less: Operating expenses (30% x P12,000,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000
Amortization expense: P60,000,000 x 30% = P18,000,000 / 20 years. . . . . . . . . . . 900,000
Add: Gain on steel pipes [70%* x (P18,000,000 P13,200,000)] . . . . . . . . . . . . . . . . . 3,360,000
Realized gain amortization**(P1,440,000/20 years). . . . . . . . . . . . . . . . . . . . . . . _____72,000
Net Income of X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 4,872,000
* PFRS 11 states that: When an entity enters into a transaction with a joint operation in which it is a joint operator,
such as a sale or contribution of assets, it is conducting the transaction with the other parties to the joint
operation and, as such, the joint operator shall recognize gains and losses resulting from such a transaction only
to the *extent of the other parties interests in the joint operation.
** Sales price of P18,000,000 P13,200,000, cost of steel pipes = P4,800,000 x 30% = P1,440,000
2. refer to the above entry

Gain on steel pipes (70%* of gain). . . . . . . . . . . . . . . . . . . . . . . . . . . P3,360,000
Unrealized gain contra account (30% of gain, P4,800,000) . . . . P1,440,000
3.
Amortization expense pipeline (P18,000,000/20 years). . . . . . . . . . . P 900,0000
Less: Amortization expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ____72,000
Amortization expense for the year P 828,000
4.
Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P18,000,000
Less: Net unrealized gain, end of 20x4:
Unrealized gain contra account (30% of gain, P4,800,000) . . P1,440,000
Less: Amortization for 20x4 ____72,000 __1,368,000
Net cost of Oil Pipeline. P16,632,000
Problem III
1.
Contributions of cash by the operators
Cash 360,000
KK Company 180,000
Cerise Company 180,000
Contribution by joint operators.
Use of cash and loan to buy machinery & equipment and raw materials
Machinery and equipment 96,000
Cash 60,000
Loans payable machinery and equipment 36,000
Contribution by joint operators.
Materials 78,000
Accounts payable 78,000
Acquisition of materials.
Labor incurrence
Payroll 86,400
Cash 84,000
Accrued payroll 2,400
Annual labor.
Loans from the bank

Cash 72,000
Bank loans payable 72,000
Amount borrowed.
Repayment of loan machinery and equipment and other factory expenses

Loan payable machinery and equipment 12,000
Cash 12,000
Partial payment of loan.
Accounts payable 50,400

Cash 50,400
Payment of trade creditors.
Factory overhead control heat, light and power 156,000

Cash 156,000
Payment of manufacturing expenses such as heat, light
and power.
Depreciation of machinery and equipment

Factory overhead control depreciation 9,600
Accumulated depreciation 9,600
Depreciation of equipment.
Transfer of materials, labor and overhead to Work-in-Process
Work-in-process 309,600
Payroll 86,400
Materials 57,600
Factory overhead control heat, light and power 156,000
Factory overhead control depreciation 9,600
Allocation of costs to work-in-process
Transfer of Work-in-Process to Finished Goods Inventory.

Finished goods 216,000
Work-in-process 216,000
Allocation to finished goods
Transfer of Finished Goods Inventory to Joint Operators throughout the year

KK Company 96,000
DD Company 96,000
Finished goods 192,000
Delivery of output to joint operators.
2.
Cash
Contribution Drei 180,000 60,000 Machinery and equipment
Contribution Cerise 180,000 84,000 Labor
Bank loan 60,000 12,000 Machinery and equipment
50,400 Accounts payable
156,000 Factory overhead control
Balance, 12/31/x4 57,600
Work-in-Process
Labor 86,400 216,000 to Finished Goods
Materials 57,600
Factory Overhead heat, etc. 156,000
Factory Overhead depreciation 9,600
Balance, 12/31/x4 93,600
3.
a. Total assets, P282,000
b. KKs investment, P84,000
c. DDs investment, P84,000
December 31, 20x4
Assets
Current Assets
Cash P 57,600
Finished goods inventory 24,000
Work-in-Process inventory 93,600
Materials inventory 20,400
Total current assets P 195,600
Non-current Assets
Equipment P 96,000
Less: Accumulated depreciation 9,600 86,400
Total Assets P282,000
Liabilities and Net Assets
Current Liabilities
Accrued payroll P 2,400
Accounts payable 27,600 P 30,000
Non-current Liabilities
Bank loan payable P 60,000
Loan payable machinery and equipment 24,000 __84,000
Total Liabilities P 114,000
Net Assets 168,000
Total Liabilities and Net Assets P282,000
Joint Operators Equity

KK Company: Contributions January 1, 20x4 P 180,000
Cost of inventory distributed ( 96,000) P 84,000
DD Company: Contributions January 1, 20x4 P 180,000

Total Joint Operators Equity P168,000
Problem IV
AACompany accounts for its interest in joint operation as follows:
January 1, 20x5, Shell Company records its interest in the joint operation, the asset cash being
distinguished as an asset in a joint operation by the use of (JO):
Cash in Joint Operation (JO). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,750,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,750,000
Contribution of cash to joint operations.
On December 31, 20x5, the joint operation has used the cash to purchase various assets, obtain
loans, produce inventory and incur expenses. As a joint contributor of 50% of the cash into the
joint operation, Shell Company is entitled to 50% of all the assets, liabilities, expenses and output
of the joint operation.
From the balance sheet of the joint operation, it should be noted on the following items:
Net assets of the joint operation (P12,915,000 P5,715,000)..P 7,200,000
Inventory 900,000
From the costs incurred information, it can be seen that the joint operation generated P7,200,000
worth of inventory.
If only P900,000 is still on hand in the joint operation, then P6,300,000 worth of inventory must
have been transferred to each joint operators of P3,150,000.
The eventual transfer of inventory to the joint operators, the joint operation decreases the
inventory balance and also decreases the equity contribution (net assets) of the joint operators.
The contributions section of the balance sheet of the joint operation at the end of the period,
after the transfer of inventory, is as follows (refer to the balance sheet above):
Shell Company initial contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 6,750,000
Less: Inventory transferred. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __3,150,000 P 3,600,000
Petron Company initial contribution . . . . . . . . . . . . . . . . . . . . . . . . . ... P6,750,000
Less: Inventory transferred. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __3,150,000 _ 3,600,000
P 7,200,000
On December 31, 20x5, Shell Company makes the following entry in its records to replace
Cash in JO with a 50% share of each of the accounts assets and liabilities in the balance
sheet of the joint operation.
2. P5,805,000.
The entry also recognizes the inventory of P3,150,000 transferred to Shell Company from the joint
operation.
Finished goods inventory in JO (P900,000 x 50% . . . . . . . . .. . . . . . 450,000
Work-in-Process inventory in JO (P2,925,000 x 50%). . . . . . . . . . . . . . 1,462,500
Materials inventory in JO (P450,000 x 50%). . . . . . . . . . . . . . . . . . . . . . 225,000
Heavy Machineries in JO (P6,750,000 x 50%) . . . . . . . . . . . . . . . . . . . 3,375,000
Finished goods inventory (P6,300,000 x 50%). . . . . . . . . . . . . . . . . . . . 3,150,000
Accounts payable in JO (P675,000 x 50%) . . . . . . . . . . . . . . . . . . 337,500
Accrued payroll in JO (P540,000 x 50%). . . . . . . . . . . . . . . . . . . . 270,000
Loans payable in JO (P4,500,000 x 50%). . . . . . . . . . . . . . . . . . . . . 2,250,000
Cash in JO [P6,750,000 (P1,890,000 x 50%] . . . . . . . . . . . . . 5,805,000
Note that Shell Companys share of cash in the joint operation is calculated by finding the
difference between the share at the beginning of the period, the initial contribution in this
example, and the share at the end of the period.
Problem V
1. The joint operator, Entity A account for their interests in the joint operation as follows:
Entity Xin 20x4
Profit or loss (construction costs) 4,800,000

Cash/Accumulated depreciation/Trade payables 4,800,000
To recognize the construction costs incurred in 20x4
Cash 8,400,000
Profit or loss (construction revenue) 8,400,000
Entity Yin 20x4
Profit or loss (construction costs) 7,200,000

Cash/Accumulated depreciation/Trade payables 7,200,000
Cash 8,400,000
Profit or loss (construction revenue) 8,400,000
Problem VI
The joint operator, Entity K account for their interests in the joint operation as follows:
January 1, 20x4 (P12,000,000 / 5 = P2,400,000)

Property, plant and equipment (interest in an aircraft) 2,400,000
Cash 2,400,000
To recognize the purchase of an ownership-interest in a
jointly controlled aircraft.
In 20x4
Cash 12,000
Profit or loss (rental income) 12,000
To recognize income earned in renting to others the use of
the aircraft in 20x4.
Profit or loss (aircraft operating expenses) 180,000

Cash 180,000
To recognize the costs of running an aircraft in 20x4.
Profit or loss (depreciation expense) 120,000

Accumulated depreciation (interest in an aircraft 120,000
To recognize depreciation of an ownership-interest in a
jointly controlled aircraft in 20x4: P12,000,000/20 years =
P600,000/5 operators = P120,000
share for each joint operator.
Problem VII
1. The following are the summaries of the above transactions for a joint operation in the form of
a partnership:
Investment in
Event Joint Operation AA BB CC
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
a. P 12,000 P12,000
b. 120,000 120,000
6,000 P 6,000
c. 180,000 120,000 P60,000
d. P588,000 P204,000 P312,000 P72,000
e. 3,600 3,600 3,600 10,800
6,000 6,000
f. * ________ ___3,000 ___3,000 ________ ________ ______ _______ _______
P318,000 P597,000 P210,600 P252,000 P315,600 P 60,000 P81,600 P 16,800
NI** _297,000 ________ ________ __112,200 ________ _147,000 _______ 31,800
P597,000 P597,000 P210,600 P364,200 P315,600 P195,000 P81,600 P48,600
Cash***
Settle-
ment _______ ________ _153,600 ________ ________ _120,600 _______ _33,000
Totals P597,000 P597,000 P364,200 P364,200 P315,600 P315,600 P81,600 P81,600
* purchases, P300,000; cost of goods sold, P294,000; ending inventory P6,000 x 50% = P3,000.
**NI Net Income Allocation

AA BB CC Total
Allowance for cleaning-up operations P 3,000 P 3,000
Commission:
Aljon: 40% of P204,000 P81,600 81,600
Elerie: 40% of P312,000 P124,800 124,800
Mac: 40% of P72,000 28,800 28,800
Balance (75%: 25%) 30,600 10,200 _______ 40,800
Total P112,200 P135,000 P31,800 P279,000
**Total credits of P597,000 Total debits of P318,000 = P279,000, net income.
2. The cash settlement entry (refer to No. 1 for the computation of settlement) would be as
follows:
AA, capital 153,600
BB, capital 120,600
CC, capital 33,000
Therefore, BB will pay P120,600 and CC will pay, P33,000 to AA as final settlement for the joint
operations.
Problem VIII
1.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
Cost of investment
Consideration transferred P2,016,000
Less: Book value of stockholders equity of Son:
Common stock (P3,600,000 x 30%) P 1,080,000
Retained earnings (P1,080,000 x 30%) 324,000 1,404,000
Allocated excess (excess of cost over book value) P 612,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P240,000 x 30%) P 72,000
Increase in land (P960,000 x 30%) 288,000
Increase in building (P600,000 x 30%) 180,000
Decrease in equipment (P840,000 x 30%) ( 252,000)
Increase in bonds payable (P120,000 x 30%) ( 360,000) 252,000
Positive excess: Goodwill (excess of cost over fair value) P 360,000
The over/under valuation of assets and liabilities are summarized as follows:

AA Co. AA Co. (Over) Under
Book value Fair value Valuation
Inventories (sold in 20x4) P1,200,000 P1,440,000 P 240,000
Land 1,080,000 2,040,000 960,000
Buildings net ( 10 year remaining life) 1,800,000 2,400,000 600,000
Equipment net ( 7 year remaining life) 1,440,000 600,000 ( 840,000)
Bonds payable (due January 1, 20x9) ( 1,200,000) (1,320,000) ( 120,000)
Net P4,320,000 P5,160,000 P 840,000
A summary or depreciation and amortization adjustments is as follows:

Over/ 30% Current
Account Adjustments to be amortized Under thereof Life Year(20x4)
Inventories (sold in 20x4) P 240,000 P 72,000 1 P 72,000
Land 960,000 288,000 - -
Buildings net ( 10 year remaining life) 600,000 180,000 10 18,000
Equipment net ( 7 year remaining life) ( 840,000) ( 252,000) 7 (36,000)
Bonds payable (due January 1, 20x9) ( 120,000) ( 36,000) 5 ( 7,200)
Net P 840,000 P 252,000 P 46,800
2. The following are entries recorded by the parent in 20x4 in relation to its investment in joint
venture:
January 1, 20x4:
(1) Investment in AA Company 2,016,000
Cash 2,016,000
Acquired 30% joint control in AA Company.
January 1, 20x4 December 31, 20x4:

(2) Cash 216,000
Investment in AA Company (P720,000 x 30%) 216,000
Record dividends from AA Company.
December 31, 20x4:

(3) Investment in AA Company 432,000
Investment income (P1,440,000 x 30%) 432,000
Record share in net income of AA Company.
December 31, 20x4:

(4) Investment income 46,800
Investment in AA Company. 46,800
Record amortization of allocated excess of inventory,
equipment, buildings and bonds payable.
3. Thus, the investment balance and investment income in the books of SS Company (the Joint
Venturer) is as follows:
Investment in Joint Venture (AA Company)

Cost, 1/1/x4 2,016,000 216,000 Dividends Son (720,000x 80%)
NI of AA 46,800 Amortization
(1,440,000 x 30%) 432,000
Balance, 12/31/x4 2,185,200
Investment Income
Amortization 46,800 NI of AA
432,000 (P1,440,000 x 30%)
385,200 Balance, 12/31/x4
To check the balance of Investment in Joint Venture (AA Company):

AA Companys Stockholders Equity, 12/31/20x4:
Common stock P3,600,000
Retained earnings
Retained earnings,1/1/20x4 P 1,080,000
Net income 20x4 1,440,000
Dividends 20x4 ( 720,000) 1,800,000
Book value of stockholders equity of AA Company,12/31/20x4 P5,400,000
Multiplied by: Interest in Joint Venture 30%
Book value of Interest in Joint Venture P1,620,000
Add: Unamortized allocated excess 30% thereof
P252,000 P46,800, amortization) 205,200
Goodwill 360,000
Investment in Joint Venture (AA Company) equity method P2,185,200
Problem IX
1.
Cost of investment
Common stock (P3,600,000 x 30%) P 1,080,000

Land 1,080,000 2,040,000 960,000
Net P4,320,000 P5,160,000 P 840,000

Over/ 30% Current
Land 960,000 288,000 - -
Net P 840,000 P 252,000 P 46,800
2. Correction: instead of does not prepare it should be does prepare

When the cost model is used, only two journal entries are recorded by SS Company during
20x4 related to its investment in AA Company. Entry (1) records San Companys purchase of
AA Companys stock, entry (2) recognizes dividend income based on the P216,000 (P720,000
x 30%) of dividends received during the period.
January 1, 20x4:
(1) Investment in SS Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,016,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,016,000
Acquired 30% joint control in AA Company.
January 1, 20x4 December 31, 20x4:

(2) Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,000
Dividend income (P720,000 x 30%) . . . . . . . . . . . . . . . . . . . . . . 216,000
Record dividends from SS Company.
On the books of SS Company, the P720,000 dividend paid was recorded as follows:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720,000
Dividends paid by AA Company
The dividends paid (or declared) account is a temporary account that is closed to retained
earnings at year-end. An alternative is to debit retained earnings directly when dividends are
paid or declared.
No entries are made on the parents books to depreciate, amortize or write-off the portion of
the allocated excess that expires during 20x4.
3. Thus, the investment balance and dividend income in the books of SS Company (the Joint
Venturer) is as follows:
Cost, 1/1/x4 2,016,000
Balance, 12/31/x4 2,016,000
Dividend Income
Dividend of AA
216,000 (P720,000 x 30%)
216,000 Balance, 12/31/x4
4. Investment in AA Company, P2,185,200

Dividend income, P0
Investment income, P385,200
Incidentally, the following entries are needed to arrive at the balances presented above:
Consolidation Workpaper
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
December 31, 20x4:

(1) Investment in AA Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432,000
Investment income (P1,440,000 x 30%) . . . . . . . . . . . . . . . . . . . 432,000
Record share in net income of AA Company.
December 31, 20x4:

(2) Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,800
Investment in AA Company . . . . . . . . . . . . . . . . . . . . . . . . . 46,800
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable.
December 31, 20x4:

(3) Dividend income (P720,000 x 30%) . . . . . . . . . . . . . . . . . . . . . . . . . 216,000
Investment in AA Company . . . . . . . . . . . . . . . . . . . . . . . . . 216,000
Adjustment for dividend paid by AA Company.
Thus, the investment balance and dividend income in the consolidated financial statement is as
follows:
Balance, 12/31/x4 2,016,000 216,000 (2) Amortization
(1) NI of AA 46,800 (3)Dividends AA Company
(1,440,000 x 30%) 432,000 (600,000 x 30%)
Balance, 12/31/x4 2,185,200

Dividend Income
(3) Adjustment 216,000 216,000 12/31/x4 Balance
0 0 12/31/x4
Investment Income
Amortization 46,800 NI of AA Company
432,000 (P1,440,000 x 30%)
385,200 Balance, 12/31/x4
Problem X refer to Problem VIII and IX

1. P2,185,000
2. P385,200

Cost of investment
Common stock (P3,600,000 x 30%) P 1,080,000

Land 1,080,000 2,040,000 960,000
Net P4,320,000 P5,160,000 P 840,000
Over/ 30% Current

Land 960,000 288,000 - -
Net P 840,000 P 252,000 P 46,800
The investment balance and dividend income in the consolidated financial statement is as
follows:
Balance, 12/31/x4 2,016,000 216,000 (2) Amortization
(1) NI of AA 46,800 (3)Dividends AA Company
(1,440,000 x 30%) 432,000 (600,000 x 30%)
Balance, 12/31/x4 2,185,200
Investment Income
Amortization 46,800 NI of AA Company
432,000 (P1,440,000 x 30%)
385,200 Balance, 12/31/x4
Problem XI
1.
Fair value of equipment transferred to JK Company. P 420,000
Carrying amount of equipment on J Companys books __120,000
Unrealized gain on transfer to JK Company. P 300,000
2. A Companys journal entry to record the initial investment on January 1, 20x4 is as follows:
Investment in JK Company.. 420,000
Equipment.. 120,000
Unrealized gain contra account.. 300,000
Using the equity method of accounting, J Co. will record its 40% share of the yearly net
incomes or losses reported by JK Company.; in addition, it will recognize the unrealized gains
in income over the life of the equipment.
The December 31, 20x4, entries are as follows:

Investment income from JK Company (40% x P122,400).. 48,960
Unrealized gain contra account (P300,000/10). 30,000

Gain on transfer of equipment to JK Company.. 30,000
This method of recognizing the gain from investing will be repeated over the next nine years,
unless JK Company sells this equipment before that period expires. If it does, J Co. will
immediately take the balance in the unrealized gains account into income.
3. P30,000 refer to No. 2 for computation
4. P30,000 refer to No. 2 for computation
Problem XII
1. Unrealized gain, P120,000 refer to No. 2 for computation
Realized gain, P180,000 refer to No. 2 for computation
2.
J Co.s journal entry to record the initial investment on January 1, 20x4, is as follows:
Equipment.. 120,000
Gain on sale of equipment.. 180,000
Note: J Co. recognizes a gain of P10,000, which is the portion of the gain deemed sold to outsiders.

Note: J portion of the unrealized gain is taken into income each year.
This method of recognizing the gain from investing will be repeated over the next nine years,
unless JK Company sells this equipment before that period expires. If it does, J Co. will
immediately take the balance in the unrealized gains account into income.
3. P192,000 = P180,000 + P12,000 (refer to No. 2 for computation)
Problem XIII
1.
Sales proceeds. P 78,000
Carrying amount of equipment on sold (P78,000/P420,000 x P120,000).. __ 22,285
Immediate gain from selling equipment to K Inc.. P 55,715
Note: J gain is recognized for the portion (P78,000/P420,000) of the equipment deemed to be sold.
2. P244,285
A Companys January 1, 20x4, journal entry to record the investment of equipment and the
receipt of cash would be as follows:
Cash... 78,000
Equipment.. 120,000
3. P24,428

Gain on transfer of equipment to JK Company... 24,428
Assuming on December 31 year-end, the P80,143 (P55,715 + P24,428) gain on transfer of

equipment to JK Company. will appear in J Cos 20x4 income statement. The unamortized
balance of the Js share of the unrealized gain of P219,857 (P244,285 P24,428) will be offset
against the investment account.
4. P80,143 = P55,715 (refer to No. 2) + P24,428 (refer to No. 3)

Problem XIV
1.
The allocation of the cash between sale proceeds and return of equity is made as follows:
Sales proceeds:
From K Inc.s investment in JK Company. P 78,000
From borrowings of JK Company... P 12,000
KInc.s proportion. __ 60% __ 7,200
P 85,200
Return of equity to J Company:
From K Inc.s investment in JK Company. P 12,000
J Companys proportion of JK borrowings. __ 40% ___4,800
Total cash received. P 90,000
Note: When some of the cash received by J Co. comes from joint venture borrowings, only K Co.s share of the
cash borrowed is considered proceeds from the sale of equipment.
2. P60,857
The gain from selling is computed as follows:
Carrying amount of assets sold (P85,200/P420,000) x P120,000..... __24,343
Immediate gain from selling equipment to K Inc... P 60,857
3. P239,143
J Companys January 1, 20x4, journal entry would be as follows:
Cash... 90,000
Equipment.. 120,000
Note: The realized gain is based on the portion of the equipment deemed to be sold to the other venturers.
4. P23,914

5. P84,771 = P60,857 (refer to No. 3) + P23,914 (refer to No. 4)
Multiple Choice Problems

1. b
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,930,000
2. c P4,200,000 + P1,050,000
The share of L Inc. in net income of the joint operations would be as follows:
Share (30%) based)
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 6,930,000 P23,100,000
Amortization expense: P21,000,000 ( 30%) / 20 years. . . . . . . . 1050,000
P70,000,000 (100%) / 20 years. . . . . . . . _3,500,000
Net Income of L. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 1,680,000 P 1,680,000
3. a refer to No. 2 above
4. b
The following journal entries would be recorded:
Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000,000
Steel Pipes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,400,000
Gain on steel pipes (70%* of gain). . . . . . . . . . . . . . . . . . . . . . . . . . . 3,920,000

L should recognize a gain of P3,920,000 [70% x (P21,000,000 P15,400,000)]*
operation.
PFRS 11 indicates the following:
When an entity enters into a transaction with a joint operation in which it is a joint
operator, such as a sale or contribution of assets, it is conducting the transaction with the
other parties to the joint operation and, as such, the joint operator shall recognize gains
and losses resulting from such a transaction only to the *extent of the other parties
interests in the joint operation. When such transactions provide evidence of a reduction
in the net realizable value of the assets to be sold or contributed to the joint operation, or
of an impairment loss of those assets, those losses shall be recognized fully by the joint
operator.
5. c refer to No. 4
6. c (P1,050,000 P84,000)
A gain can be recognized when the significant risks and rewards have been transferred.
Pipeline operating expenses (30% x P14,000,000). . . . . . . . . . . . . . . . . 4,200,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,930,000
Amortization expense pipeline (P21,000,000/20 years). . . . . . . . . . . 1,050,000

Accumulated depreciation - pipeline. . . . . . . . . . . . . . . . . . . . . . . 1,050,000

The joint operators own interest in the gain is recognized over the life of the asset.
7. c
The unrealized gain is a contra account to the pipeline account; it should not be
reported as a deferred gain on the liability side of the balance sheet. When L Inc.,
prepares a balance sheet, the unrealized gain will be offset against the pipeline such
that the pipelines net cost is P19,404,000 (P21,000,000 {P1,680,000 P84,000})). As the
net cost of the pipeline is being amortized, the unrealized gain account is also being
amortized. In effect, the unrealized gain is being brought into income over the life of the
pipeline. As the pipeline is being used to generate revenue on transactions with
outsiders, the operators own share of the unrealized gain is being recognized in net
income. This is similar to what happened in Chapter 18 (Intercompany Sales of Property
and Equipment) of Volume II, when the unrealized profits from an intercompany sale of a
depreciable asset were realized over the life of the depreciable asset.
Incidentally, the share of L Inc. in net income of the joint operation would be as follows:
Revenue (30% x P23,100,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 6,930,000

Less: Operating expenses (30% x P14,000,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200,000
Amortization expense: P70,000,000 x 30% = P21,000,000 / 20 years. . . . . . . . . . . 1,050,000
Add: Gain on steel pipes [70%* x (P21,000,000 P15,400,000)] . . . . . . . . . . . . . . . . . 3,920,000
Realized gain amortization**(P1,680,000/20 years). . . . . . . . . . . . . . . . . . . . . . . _____84,000
Net Income of L. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 5,684,000
* PFRS 11 states that: When an entity enters into a transaction with a joint operation in which it is a joint operator,
such as a sale or contribution of assets, it is conducting the transaction with the other parties to the joint
operation and, as such, the joint operator shall recognize gains and losses resulting from such a transaction only
to the *extent of the other parties interests in the joint operation.
** Sales price of P21,000,000 P15,400,000, cost of steel pipes = P5,600,000 x 30% = P1,680,000
8. b
Cash
Contribution XX 252,000 84,000 Machinery and equipment
Contribution YY 252,000 117,600 Labor
Bank loan 84,000 16,800 Machinery and equipment
70,560 Accounts payable
218,400 Factory overhead control
Balance, 12/31/x4 80,640
9. b
Work-in-Process
Labor 120,960 302,400 to Finished Goods
Materials 80,640
Factory Overhead heat, etc. 218,400
Factory Overhead depreciation 13,440
Balance, 12/31/x4 131,040
10. c
December 31, 20x4
Assets
Current Assets
Cash P 80,640
Work-in-Process inventory 131,040
Materials inventory 28,560
Total current assets P 273,840
Non-current Assets
Equipment P 134,400
Less: Accumulated depreciation 13,440 120,960
Total Assets P394,800
Liabilities and Net Assets

Current Liabilities
Accrued payroll P 3,360
Accounts payable 38,640 P 42,000
Non-current Liabilities
Bank loan payable P 84,000
Loan payable machinery and equipment 33,600 __117,600
Total Liabilities P 159,600
Net Assets _235,200
Total Liabilities and Net Assets P 394,800
11. a
Joint Operators Equity
XX Company: Contributions January 1, 20x4 P 252,000
YY Company: Contributions January 1, 20x4 P 252,000

Total Joint Operators Equity P235,200
12. d
13. a
14. c [ P50,000 (P20,000 + P40,000) + P45,000] = P35,000
15. a
16. a
17. b (P1,200,00/5 years = P240,000 x 50% share = P120,000)
18. d
The entry in the records of joint operator Two (50%) is:
Cash in JO (50% x P50,000)25,000
Building in JO at book value since he is the contributor*
(50% x P40,000)20,000
Building, cost. 40,000
Gain on sale of building [(P50,000 P40,000) x 50%].. 5 000
* but the other joint operator (One) should debit the asset at fair value, thus the entry for
the building and cash contributed by joint operator One should be:
Building in JO at fair value (50% x P50,000) 25,000
Cash in JO (50% x P50,000) 25,000
Cash.. 50,000
19. d P300,000 x 1/3 share = P100,000

20. d
21. b
The in the records of joint operator AA (60%) in relation to Plant Assets is:
Plant Assets in JO at fair value (60% x P90,000) 54,000
?? ??
?? ??
Gain on sale of building 18,000
Plant Assets at book value 90,000
22. c
The entry in the records of joint operator BB (40%) is:
Plant Assets in JO at fair value (40% x P120,000) 48,000
Obligation to JO at book value (for services) since he is
the contributor (60%* x P65,000) 39,000
Gain on Provision of Services [60%* x (P80,000 P65,000)] 9,000
* it represents his share as an obligation for his services he will render in the future.
23. c
24. b the question is NOT for part of Abels entry, best answer is b.
Joint Operator Abel Joint Operator Cain
Cash in JO 500,000 Cash in JO (50% x P2M)* 1,000,000
Bldg in JO, at BV (50% x 500,000) 250,000 Cash in JO (50% x P1M)* 500,000
Building at book value 500,000 Building at FV (50% x P1M) 500,000
Gain on sale of building Cash 2,000,000
[(P1,000,000 P500,000) x 50% 250,000 *or debit P1,500,000.
25. b refer to No. 24

26. a Work in progress: P650,000 x 50%.......................................................................P 325,000
P 425,000
26. c
MM NN
Construction revenue P9,800,000 P9,800,000
Less: Construction costs 5,600,000 8,400,000
Net income P4,200,000 P1,400,000
27. c refer to No. 26
28. a
Rental income P532,000
Less: Aircraft operating expenses 210,000
Depreciation expense _140,000
Net income P182,000
29. a
Property, plant and equipment P2,800,000
Less: Accumulated depreciation __ 140,000
Net book value P2,660,000
30. a
Books of X
Inv. in JO X, capital Journal entry for settlement should be:
Z, capital.. 6,500
4,000 6,500 2,500 X, capital 2,500
2,500 Y, capital 4,000
Books of Y
Inv. in JO Y. capital
2,500 6,500 4,000

4,000
Books of Z
Inv. in JO Z, capital
2,500 6,500
4,000
6,500
31. a
Total credits - Investment in Joint OperationsP 25,810
Total debits - Investment in Joint Operations. 19,750
Net income or total gain (credit balance).P 6,060
32. d
Jose, capital
8,500 investment
1,212 share in net income (P6,060 x 2/10)
9,712
33. a The 20,000 shares should be valued at market value, thus, P800,000 (20,000 shares x P40
per share)
34. b
Jose, capital
20,000 shares at P40/share P800,000 P 198,000 (4,500 x P44) Sales
Expenses 3,000 125,000 (5,000 x P25)
4,700 13,600* (13,600 x P1) - Cash dividend
168,000 (6,000 x P28) - Sales
266,000 (7,600 x P35)
P807,700 P 770,600
Joint operation loss P 37,100
*
9/30 Shares issued (6,000 + 10,000 + 4,000) 20,000
10/20 Sold (4,500)
11/ 1 Stock dividend (20,000 4,500) x 20% 3,100
11/15 Sold (5,000)
Balance of shares outstanding before cash dividend 13,600
Therefore, Roxas share would be P11,130 (P37,100 x 6,000/20,000 shares)
35. c
Investment in Joint Operations
Share in net loss P400,000 Investment (10,000 shares x P40)
P37,100 x (10,000/20,000) P18,550
P381,450
36. b
Unrealized loss due to decline in the value of shares at the time of investment
(P62 P40) x 4,000 shares P68,000
Share in joint operation (P37,100 x 4/20) __7,420
Reduction of loss by cash dividend (P13,600 x 4/20) P98,140
37. a
before net income or loss 15,000 25,000 ending inventory
10,000 net income
38. a (A- P10,000 x 50% = P5,000; B P10,000 x 30% = P3,000; C P10,000 x 20%)
39. a
Joint Operations Anson, Capital
Purchases 20,000 77,000 Sales (?) Unsold merchandise 600 20,000
Contr/Invest 20,000 18,600 Profit(50%)
Expenses 800
1,800 600 38,600
42,600 77,000 38,000 to Alas

34,400 (P16,000+
P18,400)
2,800 (P600 + P2,200)
Unsold merchandise
37,200 Net profit

40. c refer to No. 39 computation.
41. a
Investment in Joint Operations Santo, capital
Purchases 10,000 7,200 sales 10,000 Contribution/Invest
Freight-in 240 5,120 unsold 910 Share in NI
Freight-out 260 (P10,000 + P240) x 1/2
10,500 12,320 10,910
1,820
42. a refer to No. 41 for computation
43. c
before sale 6,500 3,500 Sales
Net loss 3,000
N, capital O, capital
1,100 14,500 1,100 6,500
13,400 5,400
Distribution of Loss:
M N O Total
Salary P 300 P - P - P 300
Balance, equally (1,100) (1,100) (1,100) (3,300)
P ( 900) P(1,100) P(1,100) P(3,000)
44. a refer to No. 43 for computation
45. b
Revenues
Total cash receipts (P78,920 + P65,245) P144,345
Less: Cash investments (P30,000 + P20,000) 50,000
Cash sales P 94,345
Add: Proceeds from sale of remaining assets 60,000
Total Revenue P154,345
Less: Expenses (P62,275 + P70,695) 132,970
Net income P 21,375
46. c
Benin, capital Sucat, capital
Receipts 78,920 30,000 Contribution Receipts 65,425 20,000 Contribution
62,275 Disbursement 70,695 Disbursement
12,825 Share in NI (3/5) 8,550 Share in NI (2/5)
78,920 105,100 65,425 99,245
26,180 33,820
47. d
Ns books: it shows P5,000 receivable from P, and P3,000 payable to O; thus, N should
receive net cash of P2,000:
O, capital..3,000
Cash2,000
P, capital.5,000
Os books: it shows P5,000 receivable from P, and P2,000 payable to N; thus, O should
receive net cash of P3,000:
N, capital2,000
Cash.3,000
P, capital.5,000
Ps books: it shows P2,000 payable to N and P3,000 payable to O; thus, in final settlement, P
should pay a total of P5,000; P2,000 and P3,000 to N and O, respectively:
N, capital.2,000
O, capital...3,000
Cash.5,000
48. d
The Investment in Basket Co. as of December 31 is as follows:
Acquisition cost, January 2 P 250,000
Add (deduct):
Share in net income (P100,000 x 30%] 30,000
Share in dividends ( 0)
Amortization of allocated excess ( 0)
Investment balance on December 31 P 280,000
Cost of investment P 250,000

Less: Book value of interest acquired [30% x P500,000) 150,000
Allocated excess P 100,000
Less: Over/undervaluation of assets and liabilities:
Goodwill P 40,000
Amortization of allocated excess:

Identifiable net assets - none
49. b
The joint arrangement is a joint venture because it needs unanimous consent to all parties
involved. The parties recognize their rights to the net assets of Harrison Company as
investments and account for them using the equity method.
The Investment in Basket Co. as of December 31 is as follows:

Acquisition cost, January 1, 2013 P 500,000
Add (deduct):
Share in net income (P90,000 x 40%] 36,000
Share in dividends (P30,000 x 40%) ( 12,000)
Amortization of allocated excess ( 16,400)

Less: Book value of interest acquired [40% x (P1,400,000 P500,000)] 360,000
Less: Over/undervaluation of assets and liabilities:
Increase in trademark (P210,000 x 40) 84,000
Amortization of allocated excess:
Building: P56,000 / 7 years P 8,000
Trademark: P84,000 / 10 years 8,400
Total P 16,400
50. b refer to No. 49 for further discussion.

The Income from Investment in Basket Co. on December 31 is as follows:
Share in net income (P90,000 x 40%] P 36,000
Income from Investment on December 31 P 19,600
51. d
The joint arrangement is a joint venture because it needs unanimous consent to all parties
involved. The parties recognize their rights to the net assets of Harrison Company as
investments and account for them using the equity method.
The Investment in Goldman Co. as of December 31, 2015 is as follows:
Acquisition cost, January 1, 2013 P 600,000
Add (deduct):
Share in net income [(P140,000 x 3 years) x 40%] 168,000
Share in dividends [(P50,000 x 3 years) x 40%] (60,000)

Less: Book value of interest acquired (40% x P1,200,000) 480,000
Less: Over/undervaluation of assets and liabilities 0
Goodwill P 120,000
There is no indication as to impairment of goodwill.
52. c
To determine whether a contractual arrangement gives parties control of an arrangement
collectively, it is necessary first to identify the relevant activities of that arrangement. That is,
what are the activities that significantly affect the returns of the arrangement?
When identifying the relevant activities, consideration should be given to the purpose and
design of the arrangement. In particular, consideration should be given to the risks to which
the joint arrangement was designed to be exposed, the risks the joint arrangement was
designed to pass on to the parties involved with the joint arrangement, and whether the
parties are exposed to some or all of those risks.
In many cases, directing the strategic operating and financial policies of the arrangement
will be the activity that most significantly affects returns. Often, the arrangement requires the
parties to agree on both of these policies. However, in some cases, unanimous consent may
be required to direct the operating policies, but not the financial policies (or vice versa). In
such cases, since the activities are directed by different parties, the parties would need to
assess which of those two activities (operating or financing) most significantly affects returns,
and whether there is joint control over that activity. This would be the case whenever there is
more than one activity that significantly affects returns of the arrangements, and those
activities are directed by different parties.
Based on the ownership structure, even though Wallace can block any decision, Wallace
does not control the arrangement, because Wallace needs Zimmerman to agree
therefore joint control between Wallace and Zimmerman (since their votes and only their
votes, together meet the requirement). Because they are the only combination of parties
that collectively control the arrangement, it is clear that Wallace and Zimmerman must
unanimously agree.
The appropriate method for the joint venture is the equity method. The Income from
Investment in Gold Co. on December 31, 2015 is as follows:
Share in net income (P140,000 x 50%) P 70,000
Income from Investment on December 31, 2015 P 70,000
53. c
No joint control multiple combinations of parties could be used to reach agreement and
collectively control the arrangement (i.e., Wallace and Zimmerman or Wallace and
American could vote together to meet the requirement). Since there are multiple
combinations, and the contractual agreement does not specify which parties must agree,
there is no unanimous consent.
It should be noted that since there is no joint control as indicated per problem and the
presence of 50% ownership holding is presumed to give significant influence of Wallace over
Goldman, unless it can be clearly demonstrated that this is not the case. Therefore,
Goldman Company is considered as an associate instead of a joint venture.
The appropriate method for Investment in Associates is the equity method. The Income from
Income from Investment on December 31, 2015 P 70,000
54. d
No joint control multiple combinations could be used to reach agreement.
It should be noted that since there is no joint control as indicated per problem and the
presence of 35% ownership holding is presumed to give significant influence of Wallace over
Goldman, unless it can be clearly demonstrated that this is not the case. Therefore,
Goldman Company is considered as an associate instead of a joint venture.
The appropriate method for Investment in Associates is the equity method. The Income from
Income from Investment on December 31 2015 P 49,000
55. d
56. d
57. b
The Investment in Dover as of December 31 is as follows:
Add (deduct):
Share in net income (P160,000 x 25%) 40,000
Share in dividends (P50,000 x 25%] (12,500)
Amortization of allocated excess (P90,000 x 25%) /10 years ( 2,250)
58. a downstream transaction (refer also to consolidation for corollary analysis)

Gross Profit Markup: P36,000/P90,000 40%
Inventory Remaining at Year-End P20,000
x: Markup 40%
Unrealized profit in ending inventory P 8,000
x: Ownership 30%
Intercompany Unrealized profit in ending inventory P 2,400
59. c
The Investment in Dover as of December 31 is as follows:
Add (deduct):
Share in dividends (P80,000 x 25%] (20,000)
Amortization of allocated excess (P250,000 x 25%) /10 years ( 6,250)
60. b
61. c refer to No. 59 computation

62. b refer to No. 60 for computation
63. c refer to No. 59 for computation
65. c refer to No. 59 for computation
67. c
Fair value of equipment transferred to ST Company. P 490,000
Carrying amount of equipment on S Companys books __140,000
Unrealized gain on transfer to ST Company. P 350,000
68. c P350,000/10 years = P35,000
69. c P350,000/10 years = P35,000
70. a
S Co.s journal entry to record the initial investment on January 1, 20x4, is as follows:
Investment in ST Company.. 490,000
Equipment.. 140,000
Gain on sale of equipment.. 210,000
Note: S Co. recognizes a gain of P210,000, which is the portion of the gain deemed sold to outsiders.
71. d P245,000 = P210,000 (refer to No. 70) + P35,000
Investment income from ST Company (40% x P142,800).. 57,120

Gain on transfer of equipment to ST Company.. 35,000
Note: A portion of the unrealized gain is taken into income each year.
72. c
Carrying amount of equipment on sold (P91,000/P490,000 x P140,000).. __ 26,000
Immediate gain from selling equipment to T Inc.. P 65,000
Note: A gain is recognized for the portion (P91,000/P490,000) of the equipment deemed to be sold.
73. d
The Companys January 1, 20x4, journal entry to record the investment of equipment and
the receipt of cash would be as follows:
Cash... 91,000
Equipment.. 140,000
74. a

Gain on transfer of equipment to ST Company... 28,500
75. c - on December 31 year-end, the P93,500 (P65,000 + P28,500) gain on transfer of equipment
to ST Company will appear in S Cos 20x4 income statement. The unamortized balance of
the Ss share of the unrealized gain of P256,500 (P285,000 P28,500) will be offset against the
investment account.
76. a
Sales proceeds:
From T Inc.s investment in ST Company. P 91,000
From borrowings of ST Company... P 14,000
T Inc.s proportion. __ 60% __ 8,400
P 99,400
Return of equity to S Company:
From T Inc.s investment in ST Company. P 14,000
S Companys proportion of ST borrowings. __ 40% ___5,600
Total cash received. P 105,000
Note: When some of the cash received by S Co. comes from joint venture borrowings, only T Co.s share of the
cash borrowed is considered proceeds from the sale of equipment.
77. c
The gain from selling is computed as follows:
Carrying amount of assets sold (P99,400/P490,000) x P140,000..... __28,400
Immediate gain from selling equipment to T Inc... P 71,000
78. c
The Companys January 1, 20x4, journal entry would be as follows:
Cash... 105,000
Equipment.. 140,000
Note: The realized gain is based on the portion of the equipment deemed to be sold to the other venturers.
79. b

80. d P98,900 = P71,000 (refer to No. 77) + P27,900 (refer to No. 79)
81. d [P100,000 x (25% x P20,000)] = P105,000
82. a [P100,000 x (25% x P20,000)] = P105,000 (P200,000 x 25%) (P250,000 x 25%) = (P7,500)
83. a - [P100,000 x (25% x P20,000)] = P105,000 (P200,000 x 25%) (P250,000 x 25%) = (P7,500)
+ (25% x P16,000) = (P3,500)
84. a
Entity KK shall account for its interest in the joint operation as follows:
Current assets (50% x P600,000)................................................... 300,000
Property, plant and equipment (60% x P1,000,000).................. 600,000
Expenses (60% x P600,000)........................................................... 360,000
Liabilities (75% x P800,000)........................................ 600,000
Revenue (55% x P1,000,000).................................... 550,000
Cash in Joint Operation/Interests in Joint Operation 110,000
85. a - refer to No. 84 for computation
The assets, liabilities, revenue and expenses are recognized and combined with those of
Entity As own financial statements. The interest in joint operations at the end of the
reporting period is reduced to P190,000, computed as follows:
Cash in Joint Operation/Interests in Joint Operation.. P 300,000

Less: Share in assets, liabilities, revenues and expenses. 110,000
Cash in Joint Operation/Interest in operation, ending balance. P 190,000
In a joint operation, the party recognizes these assets and obligations without limitation,
even if that results in the liabilities exceeding the assets. In contrast, in a joint venture, a
party has an interest in the net assets and that partys loss is limited to its investment. When a
party has an interest in the net assets and any losses exceed the investment, the losses are
not recognized (i.e., the party does not recognize a negative investment). Instead, such
losses are recognized only to the extent that the party has a legal or constructive obligation
to make payments on behalf of the joint venture.
86. d refer to No. 85 for computation
Share in revenue................................................................................ P 550,000
Less: Share in expenses............................................ 360,000
Share in net income.................................................................................. P 190,000
Quiz - XI
1. P 2,510
Purchases 45,000 48,700 Sales
18,000 16,800
Interest expense 80 40 Dividend
50 100
63,130 65,640
2,510 2,510 Net income
McKee, capital Nelson, capital

48,700 45,000 16,800 18,000
40 80 100 50
1,225 share in NI 1,225 share in NI
2,405 2,405
2. a refer to No 16 for computation

Nelson, capital 2,405
McKee 2,405
3. P 300
Purchases 950 800 sales
Expenses 150 600
1,100 1,400
300 Net income
Bar, capital Car, capital

800 950 600 150
270 30
800 1,220 600 180
420 due to Due from 420
The entry for the settlement would be as follows (Car will pay Bar P420):
Bar, capital 420
Car, capital 420
Distribution of net income

Bar Car Total
Commission on net purchases:
20% x P950 P190 P190
Commission on sales:
25% x P800 200 200
25% x P600 P150 150
Balance, equally (120) (120) (240)
P270 P 30 P300)
4. b refer to No. 3 for computations.
5. P 21,000
Investment in Joint Operations Tan, capital
15,000 before P/L 27,000
10,500 unsold merchandise unsold merch. 10,500 4,500 share in NI (1/3 x P13,500)
Salary Reyes 12,000 25,500 net income 10,500 31,500
13,500 21,000
6. P8,316,000
The share of R Inc. in net income of the joint operations would be as follows:
Share (30%) based)
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 8,316,000 P27,720,000
Amortization expense: P25,200,000 ( 30%) / 20 years. . . . . . . . 1,260,000
P84,000,000 (100%) / 20 years. . . . . . . . _4,200,000
Net Income of R. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P2,016,000 P 2,016,000
7. P P6,300,000 = P5,040,000 + P1,260,000 refer to No. 6 for further computation

8. P2,016,000 refer to No. 6 for computation
9. P4,704,000
The following journal entries would be recorded:
Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,200,000
Metal Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,480,000
Gain on metal sheets (70%* of gain). . . . . . . . . . . . . . . . . . . . . . . . . 4,704,000

L should recognize a gain of P4,704,000 [70% x (P25,200,000 P18,480,000)]*
operation.
10. P2,016,000 refer to No. 9
11. P1,159,200 = P1,260,000 P100,800
Amortization expense pipeline (P25,200,000/20 years). . . . . . . . . . . 1,260,000

Accumulated depreciation - pipeline. . . . . . . . . . . . . . . . . . . . . . . 1,260,000

12. P23,284,800 = P25,200,000 (P2,016,000 P100,800)
13. P75,000
14. P2,071,500
The Investment in Lennon as of December 31 is as follows:
Acquisition cost, January 1 P1,920,000
Add (deduct):
Share in dividends (P2.50 x 60,000 shares] (150,000)
Investment balance on December 31 P2,071,500
15. P1,609,000
The Investment in Wilton as of December 31 is as follows:
Acquisition cost, January 1 P 1,400,000
Add (deduct):
Share in net income (P600,000 + P750,000) x 30% 405,000
Share in dividends (P200,000 x 2 years x 30%] (120,000)
Amortization of allocated excess (P380,000 / 10 years) x 2 years ( 76,000)
Investment balance on December 31 P1,609,000
Cost of investment P1,400,000

Less: Book value of interest acquired [30% x (P6,400,000 P3,000,000)] 1,020,000
Less: Over/undervaluation of assets and liabilities 0
Patents P 380,000
16. P950,800
The Investment in Wilton as of December 31 is as follows:
Acquisition cost, January 1 P 1,000,000
Add (deduct):
Share in net loss (P140,000 x 30%) ( 42,000)
Share in dividends (P24,000 x 30%] ( 7,200)
Investment balance on December 31 P, 950,800
17. P3,240 = [P24,000 x (P120,000 P66,000)/P120,000] x 30%
Multiple Choice Problems SME for Joint Ventures

1. a 6. a 11. a
2. a 7. a 12. c
3. a 8. a 13. a
4. a 9. c 14. a
5. c 10. a 15. b
16. c
Cost of investment in entity Z:
Purchase price.. P 28,000
Add: Transaction costs (1% x P28,000) 280
Costs. P 28,280
Less: Fair value on December 31, 20x4..................... .P 15,000
Less: Costs to sell (5% x P15,000).. 750 14,250
Impairment loss.. P 14,030
17. d
No entry required only the decrease or increase in fair value is recognized to profit and
loss.
18. a
Cost of investment in entity Z:
Purchase price.. P 28,000
Add: Transaction costs (1% x P28,000) 280
Initial costs.. P 28,280
Less: SME As share of entity Zs loss for the year (25% x P20,000)...... 5,000
Costs of investment, December 31, 20x4. P23,280
Less: Fair value on December 31, 20x4......................... .P 15,000
Less: Costs to sell (5% x P15,000). 750 14,250
Impairment loss.. P 9,030
19. b
Cost of investment in entity Z. ..P 28,000
Less: Fair value on December 31, 20x4..................................................... 15,000
Decrease in fair value on December 31, 20x4P 13,000
20. a
Entity X:
Cost of investment in entity X. P 10,000
Less: Fair value on December 31, 20x4............................................... 13,000
Increase in fair value on December 31, 20x4 P 13,000
Entity Y:
Cost of investment in entity Y. P 15,000
Less: Fair value on December 31, 20x4............................................... 29,000
Increase in fair value on December 31, 20x4 P 14,000
21. d refer to paragraphs PFRSs for SMEs paragraphs 15.10 and 15.11
20x4: P101,000 because recoverable amount fair value less costs to sell of P98,000 is less than the
cost of P101,000.
20x5: P101,000 because it is less than recoverable amount.
20x6: P86,000 because recoverable amount of P86,000 is less than cost of P101,000.
22. e PFRSs for SMEs paragraphs 15.12, 15.14 and 15.15
Theories
1. c
2. d
3. c
4. a
5. c
6. a
7. c
8. c
9. c
10. c
11. a

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Chapter 11

Oil Pipeline operating expenses (30% x P12,000,000). . . . . . . . . . . . . . 3,600,000

Amortization expense pipeline (P18,000,000/20 years). . . . . . . . . . . 900,000

The following should be observed in relation to the above journal entry:

Unrealized gain contra account (P1,440,000/ 20 years). . . . . . . . . . 72,000

The following should be observed in relation to the above journal entry:

2. refer to the above entry

Loans from the bank

Repayment of loan machinery and equipment and other factory expenses

Accounts payable 50,400

Factory overhead control heat, light and power 156,000

Depreciation of machinery and equipment

Transfer of Work-in-Process to Finished Goods Inventory.

Transfer of Finished Goods Inventory to Joint Operators throughout the year

Joint Operators Equity

DD Company: Contributions January 1, 20x4 P 180,000

Profit or loss (construction costs) 4,800,000

Entity Yin 20x4

Profit or loss (construction costs) 7,200,000

January 1, 20x4 (P12,000,000 / 5 = P2,400,000)

Profit or loss (aircraft operating expenses) 180,000

Profit or loss (depreciation expense) 120,000

**NI Net Income Allocation

The over/under valuation of assets and liabilities are summarized as follows:

A summary or depreciation and amortization adjustments is as follows:

January 1, 20x4 December 31, 20x4:

December 31, 20x4:

December 31, 20x4:

Investment in Joint Venture (AA Company)

To check the balance of Investment in Joint Venture (AA Company):

The over/under valuation of assets and liabilities are summarized as follows:

A summary or depreciation and amortization adjustments is as follows:

2. Correction: instead of does not prepare it should be does prepare

January 1, 20x4 December 31, 20x4:

Balance, 12/31/x4 2,016,000

4. Investment in AA Company, P2,185,200

December 31, 20x4:

December 31, 20x4:

December 31, 20x4:

Balance, 12/31/x4 2,185,200

Problem X refer to Problem VIII and IX

Schedule of Determination and Allocation of Excess

The over/under valuation of assets and liabilities are summarized as follows:

AA Co. AA Co. (Over) Under

A summary or depreciation and amortization adjustments is as follows:

Over/ 30% Current

Balance, 12/31/x4 2,185,200

Investment in JK Company.. 48,960

Unrealized gain contra account (P300,000/10). 30,000

Unrealized gain contra account (P120,000/10). 12,000

Unrealized gain contra account (P244,285/10). 24,428

Assuming on December 31 year-end, the P80,143 (P55,715 + P24,428) gain on transfer of

4. P80,143 = P55,715 (refer to No. 2) + P24,428 (refer to No. 3)

Unrealized gain contra account (P239,143/10). 23,914

5. P84,771 = P60,857 (refer to No. 3) + P23,914 (refer to No. 4)

Multiple Choice Problems

3. a refer to No. 2 above

The following should be observed in relation to the above journal entry:

Amortization expense pipeline (P21,000,000/20 years). . . . . . . . . . . 1,050,000

Unrealized gain contra account (P1,680,000/ 20 years). . . . . . . . . . 84,000

Revenue (30% x P23,100,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 6,930,000

Liabilities and Net Assets

YY Company: Contributions January 1, 20x4 P 252,000

19. d P300,000 x 1/3 share = P100,000