Chapter 28 - Multiple choice quiz

Which of the following statements is correct?

A.	the equity method used to account for investments in associates in accordance with IAS 28 is commonly referred to as the one-line consolidation method

B.	the consolidation method applies where an entity has control or joint control over another entity

C.	the accounting method prescribed in IAS 31 to account for investments in joint ventures requires considerably more disclosure than the accounting method prescribed in IAS 28 to account for investments in associates

D.	IAS 31 adopts a substance over form approach to the determination of joint control, consistent with that approach adopted in IAS 27 in relation to the determination of joint control

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity:

A.	subject to joint control;

B.	where one party dominates the operations;

C.	and one party exerts significant influence;

D.	in which one of the parties has the capacity to exercise control.

Joint control is defined as the:

A.	ability to dominate the financing and operating policies of an entity;

B.	capacity to control the financing and operating policies of another entity;

C.	contractually agreed sharing of control over an economic activity;

D.	right to significantly influence the financing and operating policy decisions of another entity.

Joint ventures may take any of the following forms:

I.	Jointly controlled operations.
II.	Jointly controlled assets.
III.	Jointly controlled entities.
IV.	Jointly controlled subsidiaries.

A.	I, II and IV only;

B.	I, II and III only;

C.	II, II and IV only;

D.	All of the above.

ED 9 Joint Arrangements proposes the following terminology changes

	Current IAS 31 terminology	Proposed ED 9 terminology
I II III IV	joint control decisions joint venture jointly controlled entity venturer	shared joint arrangement joint venture party

A.	I and IV only

B.	II, III and IV only

C.	I, II and III only

D.	I, II, III and IV

ED 9 Joint Arrangements proposes a number of terminology changes. Which of the following is not correct?

Current IAS 31 terminology/ Proposed ED 9 terminology

A.	jointly controlled operation >> joint operation

B.	jointly controlled asset >> joint asset

C.	jointly controlled entity >> joint entity

D.	interests in joint ventures >> joint arrangements

As a venturer incurs costs related to a jointly controlled operation it prepares the following accounting entry:

A.	DR Contribution to joint venture;

B.	DR Revenue from joint venture;

DR Cash;

D.	DR Work in progress.

When product of a jointly controlled operation is sold the venturer recognises a share of the proceeds with the following entry:

A.	DR Revenue from joint venture;

B.	CR Revenue from joint venture;

C.	DR Contribution to joint venture;

D.	CR Profit from joint venture.

When accounting for jointly controlled assets a venturer must recognise all of the following except:

A.	its share of jointly controlled assets;

B.	any liabilities it has incurred jointly with other venturers;

C.	100% of the joint venture expenses;

D.	its share of liabilities it has incurred jointly with other venturers.

10.

Three companies enter into a joint venture agreement under which they each have an equal share in a jointly controlled water pipeline that cost $3 million to construct. Each venturer will pass the following accounting entry:

A.	DR Water pipeline – Property asset $1m CR Cash $1m;

B.	DR Water pipeline – Property asset $3m CR Cash $3m;

C.	DR Cost of product – JV $1m CR Work in progress $1m;

D.	DR Cost of product – JV $3m CR Work in progress $3m.

11.

When a joint venture is undertaken outside a formal structure the following records must be kept:

A.	a full accounting ledger must be kept;

B.	a monthly joint venture consolidation must be prepared;

C.	half yearly interim joint venture accounts must be prepared;

D.	no formal accounting records are required.

12.

If the joint venture distributes the output produced to the venturers, there is a need to keep records of:

A.	joint venture profit generated;

B.	revenue generated by the joint venture;

C.	joint venture taxation expense;

D.	joint venture work in progress costs.

13.

When a joint venture distributes output to the venturers the costs of producing the output are accumulated in a work in progress account and transferred to the venturers as:

A.	net profit;

goodwill;

C.	inventory;

D.	joint venture contributions of non-current assets.

14.

During a financial year an unincorporated joint venture incurred operating expenses amounting to $1.5m. Of these costs $ 1.25m was finished goods inventory at year end and the balance was work in progress. The journal entry to record the allocation of costs to appropriate inventory accounts is:

A.	DR Inventory $1.50m CR Operating expenses $1.50m;

B.	DR Work in progress $0.25m DR Inventory $1.25m CR Operating expenses $1.50m;

C.	DR Operating expenses $1.50m CR Work in progress $1.25m CR Finished goods $0.25m

D.	DR Operating expenses $1.50m CR Joint venture contribution $1.50m.

15.

Winsome Limited and Spender Limited agreed to form a joint venture to manufacture laminated wood products. To start the venture the venturers agreed to contribute cash of $300 000 each. Which of the following is an appropriate entry to record this transaction?

A.	DR Cash $600 000 CR Joint venture contributions $600 000;

B.	DR Joint venture contributions $600 000 CR Cash $600 000;

C.	DR Cash $600 000 CR Winsome – contribution $300 000 CR Spender – contribution $300 000;

D.	DR Winsome - Venturers' equity $300 000 DR Spender – Venturer's equity $300 000 CR Cash $600 000.

16.

Cash contributed to an unincorporated joint venture was used to purchase Equipment ($100 000) and raw materials ($70 000). The following entry would be part of the overall recording of these transactions:

A.	DR Equipment $100 000 DR Raw materials $ 70 000 CR Cash $170 000;

B.	DR Work in progress $170 000 CR Joint venture capital $170 000;

C.	DR Cash $170 000 DR Contribution to joint venture $170 000;

D.	DR Cash $170 000 CR Equipment $100 000 CR Raw materials $ 70 000.

17.

Three venturers are involved in a joint venture that manufactures ships chandlery. At the beginning of the year the joint venture held $50 000 in cash. During the year the joint venture incurred the following expenses: Wages paid $20 000, Overheads accrued $10 000. Additionally creditors amounting to $40 000 were paid and the venturers contributed a $15 000 cash each to the joint venture. The balance of cash held by the joint venture at the end of the year is:

$25 000;

$75 000;

$ 5 000;

$35 000.

18.

When a venturer is accounting for an interest in jointly controlled assets sharing output it is required to recognise all of the following in its financial statements:

	I	II	III	IV
The assets that it controls	Yes	Yes	Yes	Yes
The liabilities that it incurs	Yes	Yes	No	No
Its share of income from the sale of goods by the joint venture	Yes	No	Yes	No
The expenses that it incurs	Yes	No	No	No

II;

III;

IV.

19.

Under the one-line method of accounting for a share in an unincorporated joint venture, a venturer records its investment in the joint venture adjusting:

A.	for any contributions it makes to the joint venture and any distributions from the joint venture;

B.	to include its share in the assets of the joint venture;

C.	to recognise its obligation for the liabilities of the joint venture;

D.	for any operating expenses incurred by the joint venture.

20.

Under the line-by-line method of recording an interest in an unincorporated joint venture, a venturer includes:

A.	its share of the equity of the joint venture;

B.	only its share of the liabilities of the joint venture;

C.	its share of each of the assets and liabilities of the joint venture;

D.	only its share of the non-current assets of the joint venture.

21.

Voltan Limited and Alintas Limited each contributed cash of $40 000 to a joint venture operation in which they are equal participants. Using the one-line method of accounting, each participant would record this transaction using the following entry:

A.	DR Cash $40 000 CR Contribution to joint venture $40 000;

B.	DR Work in progress $40 000 CR Contribution to joint venture $40 000;

C.	DR Cash in JV $40 000 CR Cash $40 000

D.	DR Investment in joint venture $40 000 CR Cash $40 000.

22.

Where Venturer A contributes cash of $20 000 to a joint venture and Venturer B contributes a non-current asset with a fair value of $20 000, the following entry is recorded by Venturer A under the line-by-line method:

A.	DR Cash in JV $10 000 DR Non-current asset in JV $10 000 CR Cash $20 000;

B.	DR Investment in JV $20 000 CR Cash $20 000

C.	DR Non-current asset in JV $20 000 CR Cash $20 000;

D.	DR Cash in JV $10 000 CR Non-current asset in JV $10 000.

23.

When a venturer agrees to provide a service to a joint venture it recognises a liability for the obligation to provide the service and the joint venture recognises:

A.	an equity item;

an asset;

C.	a revenue item;

D.	an expense.

24.

On 1 July 2009 Boxer Pty Ltd, Dancer Pty Ltd and Acrobat Pty Ltd entered into an agreement to form an unincorporated joint venture for a period of ten years.

The interests and contributions of each venturer are as follows:

Boxer Pty Limited
Interest in JV: 50%
Contributions:
• A patent with a fair value of $15 million and carrying amount of $10 million at 1 July 2009. Estimated useful life is 15 years and estimated fair value in ten years time is $5 million. The patent will be returned to Boxer at the conclusion of the joint venture arrangement. Amortisation of the patent will be undertaken in each venturer's books.

Dancer Pty Ltd
Interest in JV: 25%
Contributions:
• $4 million cash
• Technical services with a fair value of $1 million are to be provided evenly over the first five years of the arrangement. The estimated cost to provide the services is $750,000.

Acrobat Pty Ltd
Interest in JV: 25%
Contributions:
• An item of plant & equipment with a fair value of $5 million and carrying amount of $4 million. Estimated useful life is 5 years.

Dancer has been appointed the manager to oversee the running of the joint venture and will receive $200,000 per annum for performing this role. The estimated cost to Dancer of performing this role is $170,000 per annum. The adjusting entries recorded by Dancer in relation to the management fee will include:

A.	CR Management fee revenue $42,500

B.	DR Management fee revenue $50,000

C.	DR Management fee revenue $127,500

D.	CR Management fee revenue $150,000

25.

On 1 July 2009 Boxer Pty Ltd, Dancer Pty Ltd and Acrobat Pty Ltd entered into an agreement to form an unincorporated joint venture for a period of ten years.

The interests and contributions of each venturer are as follows:

Boxer Pty Limited
Interest in JV: 50%
Contributions:
• A patent with a fair value of $15 million and carrying amount of $10 million at 1 July 2009. Estimated useful life is 15 years and estimated fair value in ten years time is $5 million. The patent will be returned to Boxer at the conclusion of the joint venture arrangement. Amortisation of the patent will be undertaken in each venturer's books.

Dancer Pty Ltd
Interest in JV: 25%
Contributions:
• $4 million cash
• Technical services with a fair value of $1 million are to be provided evenly over the first five years of the arrangement. The estimated cost to provide the services is $750,000.

Acrobat Pty Ltd
Interest in JV: 25%
Contributions:
• An item of plant & equipment with a fair value of $5 million and carrying amount of $4 million. Estimated useful life is 5 years.
The annual amortisation charge that will be recorded by Boxer in relation to the patent is:

$500,000

$666,667

C.	$1 million

D.	$1.5 million

26.

On 1 July 2009 Boxer Pty Ltd, Dancer Pty Ltd and Acrobat Pty Ltd entered into an agreement to form an unincorporated joint venture for a period of ten years.

The interests and contributions of each venturer are as follows:

Boxer Pty Limited
Interest in JV: 50%
Contributions:
• A patent with a fair value of $15 million and carrying amount of $10 million at 1 July 2009. Estimated useful life is 15 years and estimated fair value in ten years time is $5 million. The patent will be returned to Boxer at the conclusion of the joint venture arrangement. Amortisation of the patent will be undertaken in each venturer's books.

Dancer Pty Ltd
Interest in JV: 25%
Contributions:
• $4 million cash
• Technical services with a fair value of $1 million are to be provided evenly over the first five years of the arrangement. The estimated cost to provide the services is $750,000.

Acrobat Pty Ltd
Interest in JV: 25%
Contributions:
• An item of plant & equipment with a fair value of $5 million and carrying amount of $4 million. Estimated useful life is 5 years.
Acrobat will recognise the following adjustment at 30 June 2010 in relation to the technical services provided to the joint venture by Dancer during the year.

A.	DR Services receivable in JV 200,000

B.	CR Services receivable in JV 50,000

C.	CR Services provided to JV 37,500

D.	No entry required by Acrobat

27.

On 1 July 2009 Boxer Pty Ltd, Dancer Pty Ltd and Acrobat Pty Ltd entered into an agreement to form an unincorporated joint venture for a period of ten years.

The interests and contributions of each venturer are as follows:

Boxer Pty Limited
Interest in JV: 50%
Contributions:
• A patent with a fair value of $15 million and carrying amount of $10 million at 1 July 2009. Estimated useful life is 15 years and estimated fair value in ten years time is $5 million. The patent will be returned to Boxer at the conclusion of the joint venture arrangement. Amortisation of the patent will be undertaken in each venturer's books.

Dancer Pty Ltd
Interest in JV: 25%
Contributions:
• $4 million cash
• Technical services with a fair value of $1 million are to be provided evenly over the first five years of the arrangement. The estimated cost to provide the services is $750,000.

Acrobat Pty Ltd
Interest in JV: 25%
Contributions:
• An item of plant & equipment with a fair value of $5 million and carrying amount of $4 million. Estimated useful life is 5 years.

Which of the following options correctly summarises the amounts that Boxer would record in relation to their share of the initial contributions received by the joint venture?

	I	II	III	IV
Cash in JV	2,000,000	2,000,000	2,000,000	2,000,000
Services rec in JV	375,000	500,000	375,000	500,000
Patent in JV	5,000,000	2,500,000	2,500,000	5,000,000
Equipment in JV	2,500,000	2,500,000	2,000,000	2,000,000

III

28.

IAS 31 prescribes the following methods for accounting for an investment in a jointly controlled entity:

A.	the equity method only

B.	a choice between the full consolidation method and the proportionate consolidation method

C.	a choice between the equity method and the proportionate consolidation method

D.	a choice between the equity method and the one-line consolidation method

29.

BHP Billiton and Deloitte are examples of entities who have responded to ED 9. Which if the following statements is correct in relation to the responses from these entities?

A.	BHP Billiton confirmed its agreement with the proposal to specify the use of the equity method when accounting for jointly controlled entities.

B.	BHP Billiton stated that it did not concur with the proposed removal of the proportionate consolidation method when accounting for jointly controlled entities.

C.	Deloitte asserted that the use of the proportionate consolidation method is inconsistent with the Framework, and agreed with the proposal to remove it from IAS 31.

D.	BHP Billiton argued that the primary motive of the IASB in removing the proportionate consolidation method was for the sake of US-GAAP convergence.

30.

Which of the following is not required to be disclosed under IAS 31?

A.	the aggregate amount of contingent liabilities, unless the probability of loss is remote.

B.	the method used to recognise interests in jointly controlled entities

C.	the venturers share of capital commitments

D.	the proportion of ownership interest held in jointly controlled entities

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