JOINT PRODUCTION OPERATIONS (12 marks)

On 1 July 2021, Sushi Ltd entered into a 50:50 joint operation with Tacos Ltd to produce Sushi Tacos. It was agreed that each operator would share output and costs equally. Sushi Ltd contributes cash of $27.5 million while Tacos Ltd contributes the following assets:

fair value:

land = $5.5 million (Carrying amount $6.5 million)

plant = $22 million (Cost $32.5 million; Carrying amount $17 million)

For the year ended 30 June 2022, the following financial statements were prepared by the joint operation manager.

Extract of balance sheet as at 30 June 2022:

cash = 1.000.000

inventory = 2.000.000

plant = 24.000.000

land = 8.000.000

total assets = 35.000.000

additional information:

1. Sushi ltd was appointed manager of the joint operation

2. The tax rate is 30%

A. Prepare all journal entries required to record the initial investment for Taco Ltd, including any asset impairment

B. Prepare the journal entries recorded by Taco Ltd on 30 June 2022 to record its share of assets in the joint arrangement