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Testbank

to accompany

Applying International
Accounting Standards
by
Alfredson, Leo, Picker, Pacter & Radford
Prepared by
Victoria Wise

John Wiley & Sons Australia, Ltd 2005

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CHAPTER 23 Interests in joint ventures


Question 1
The particular relationship between parties that signifies the existence of a joint venture is:
A
B
C
D

significant influence by one party over the other party;


control over the operating policies of one party by another party;
shared influence by two parties over the activities of another party;
joint control by the parties over the activities of an operation.

Question 2
The matters generally dealt with in a joint venture contract include the:

activity, duration and reporting obligations


capital contribution of the venturers
sharing of the output, expenses or results
voting rights of the venturers

A
B
C
D

I;
II;
III;
IV.

I
Yes
Yes
No
No

II
Yes
Yes
Yes
No

III IV
Yes Yes
Yes No
Yes Yes
Yes No

Question 3
A relationship that is characterised by the existence of a capacity to share control over an
economic entity is known as:
A
B
C
D

a parent-subsidiary relationship;
a joint venture;
an investor-associate relationship;
a sole proprietorship.

Question 4
IAS 31 Interests in Joint Ventures, provides that joint control exists where:
A

no single venturer is in a position to control the activity unilaterally;

Applying International Accounting Standards Chapter 23

-3B
C
D

the decisions in areas essential to the goals of the joint venture do not require the
consent of the venturers;
no one party may be appointed as the manager of the joint venture;
one party alone has power to control the strategic operating decisions of the joint
venture.

Question 5
As a joint venturer uses its own assets and incurs costs in relation to a joint venture project it
records these costs in the following manner:
A
B
C
D

DR
DR
CR
CR

Work in progress joint venture project;


Cost of product joint venture project;
Expenses joint venture project;
Revenue joint venture project.

Question 6
A joint venture holds Equipment with a carrying amount of P1 200 000. The two venturers
participating in this arrangement share control equally. They also depreciate Equipment using
the straight-line method. The Equipment has a useful life of 5 years. At reporting date each
venturer must recognise the following entry, in relation to depreciation, its records:
A
B
C
D

DR
DR
DR
DR

Depreciation
Depreciation
Investment in joint venture
Assets in joint venture

P240 000;
P120 000;
P240 000;
P120 000.

Question 7
In relation to the supply of a service to a joint venture by one of the venturers, which of the
following statements is correct?
A
B
C
D

a venturer can recognise 100% of the earned through the supply of services to the
joint venture;
a venturer is entitled to recognise a profit from the supply of services to itself;
a venturer cannot earn a profit on supplying services to itself;
a venturer is not able to recognise the service revenue or service cost for the services
supplied to the joint venture.

Question 8

Applying International Accounting Standards Chapter 23

-4Company A Limited and Company B Limited formed a joint venture and share equally in the
output of the joint venture. The joint venture paid a management fee of P20 000 to Company A
limited during the current period. The cost to Company A limited of supplying the management
service was P14 000. Company A Limited records the management fee revenue as follows:
A
B
C
D

DR
CR
DR
CR
DR
CR
DR
CR

Cash

P20 000
Fee revenue
Cash
P14 000
Fee revenue
Cash
P 6 000
Fee revenue
Cash
P10 000
Fee revenue

P20 000;
P14 000;
P 6 000;
P10 000.

Question 9
Three parties agree to an arrangement in which they have an equal share in an agricultural
venture. The work undertaken in setting up the venture cost P300 000 and each venturer
contributed in cash. Each venturer will need to recognise the following accounting entry:
A
B
C
D

DR
CR
DR
CR
DR
CR
DR
CR

Cost of joint venture product


Cash
Inventory in joint venture
Cash
Agriculture joint venture
Cash
Agriculture joint venture
Cash

P300 000
P300 000;
P100 000
P100 000;
P300 000
P300 000;
P100 000
P100 000.

Question 10
Wiseye Limited and Goodbody Limited agreed to form a joint venture to offer health services.
To start the venture the venturers agreed to contribute cash of P30 000 each. The joint venture
will record which of the following entries to recognise this event?
A
B
C
D

DR
CR
DR
CR
DR
DR
CR
DR
CR
CR

Joint venture contributions


Cash
Cash
Joint venture contributions
Venturers equity Wiseye Limited
Venturers equity Goodbody Limited
Cash
Cash
Joint venture contribution Wiseye
Joint venture contribution Goodbody

P600 000
P600 000;
P600 000
P600 000;
P300 000
P300 000
P600 000;
P600 000

Applying International Accounting Standards Chapter 23

P300 000
P300 000.

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Question 11
Erdowin Limited and Koken Limited each contributed cash of P50 000 to a joint venture
operation. They have equally shared control over the activities of the joint venture. participants.
If the one-line method of accounting is used, each joint venturer would record this transaction as
follows:
A
B
C
D

DR
CR
DR
CR
DR
CR
DR
CR

Investment in joint venture


Cash
Investment in joint venture
Work in progress
Share in associate
Cash
Investment in subsidiary
Contribution to joint venture

P 50 000
P 50 000;
P100 000
P100 000;
P 50 000
P 50 000;
P100 000
P100 000.

Question 12
A joint venture was commenced between two participants. Participant One contributed cash of
P50 000, and Participant Two contributed a Building with a fair value of P50 000. Using the
line-by-line method of accounting, participant One would record:
A
B
C
D

DR
CR
DR
CR
DR
CR
DR
DR
CR

Building in joint venture


Contribution to joint venture
Cash in joint venture
Contribution to joint venture
Investment in joint venture
Cash
Cash in joint venture
Joint venture Building
Cash

P50 000
P50 000;
P50 000
P50 000;
P50 000
P50 000;
P25 000
P25 000
P50 000.

Applying International Accounting Standards Chapter 23

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ANSWERS
1

10

11

12

Applying International Accounting Standards Chapter 23

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