On 1 July 2020 Transatlantic Ltd enters into a joint arrangement with Archtic Ltd. Both parties commit themselves to a contractual arrangement in which Transatlantic Ltd contributes plant and machinery with a fair value of $30 million; Archtic Ltd contributes cash of $15 million and land with a fair value of $15 million, which is considered to be a good site for the extraction of minerals. The cash that is contributed is used partly to acquire some additional machinery at a cost of $12 million, with the remaining cash balance to meet operational requirements.

Additional information:

• The machinery contributed by Transatlantic Ltd has a carrying amount of $32 million (cost $40 million; accumulated depreciation $8 million) and a fair value of $30 million.
• The land contributed by Archtic Ltd has a carrying amount of $13 million and a fair value of $15 million.
• All current and future contributions are to be based on a 50:50 split, as are the future distributions of output.

Required:

1. Prepare the journal entries that would appear in the journals of Transatlantic Ltd to record the establishment of the joint operation on 1 July 2020. You need to demonstrate the necessary explanations /descriptions with supporting calculations. [8 +5 = 13 Marks]
2. Prepare the journal entries that would appear in the journals of Archtic Ltd to record the establishment of the joint operation on 1 July 2020. You need to demonstrate the necessary explanations /descriptions with supporting calculations. [7 +5 = 12 Marks]