"Associates and Joint Arrangements"

On 1 Jan 2019, Float Bhd. together with Fly Bhd. set up a separate vehicle, SV Bhd., as joint operation for a special project. The contractual agreement provides both parties with joint control over SV Bhd. Float Bhd. contribute RM1,500,000 cash to SV Bhd. as capital for its interest in it. The contractual agreement also specifies that Float Bhd. will have the following rights over assets and obligations over liabilities, of SV Bhd.

40% of all assets both current and non-current

50% of all liabilities both current and non-current

65% of revenue from the output

55% of all expenses

At the end of the financial year, the followings are recorded:

RM

Revenue 600,000

Expenses (260,000)

Profit 340,000

Property, plant and equipment 2,400,000

Current assets 600,000

Liabilities 460,000

Capital contribution 2,200,000

Required:

1. Explain how Float Bhd. should account for the joint operation.

2. Show relevant journal entries at investment date and at the end of financial year.

3. Assume that SV Bhd. is already in business when Float Bhd. takes interest in its operation. The followings are the assets (at fair value) and liabilities of SV Bhd. as at 1 Jan 2019, when Float Bhd. and Fly Bhd. acquired interest in it.

Property, plant and equipment 410,000

Current assets 150,000

Liabilities 210,000

Capital contribution 350,000

The contractual agreement specifies its rights and obligations as stated earlier. Float Bhd. also purchase special equipment and secure a loan from bank as mentioned earlier for the purpose of the joint arrangement. Its initial capital contribution remains at RM1,500,000 cash.

Required:

a) Calculate the excess of the contribution made by Float Bhd. in the joint operation.

b) Show the journal entries at the acquisition date.