Question 24.4

On 1 July 2016, Darwin Ltd entered into a joint agreement with Broome Ltd to form an unincorporated entity to produce a new type of widget. It was agreed that each party to the agreement would share the output equally. Darwin Ltd?s initial contribution consisted of $2 000 000 cash and Broome Ltd contributed machinery that was recorded in the records of Broome Ltd at $1 900 000. During the first year of operation both parties contributed a further $3 000 000 each.

On 30 June 2017, the venture manager provided the following statements: Could I please get some help answering this question?

2103AFE Company Accounting Week 12 Workshop 9: Joint arrangements Case study 2 In Note 1(b) of its annual report for the period ending 31 December 2012 (p. 148), Rio Tinto Ltd reported that it had interests in both jointly controlled entities and jointly controlled assets and that different accounting methods were used for these two items. The Note stated: Jointly controlled entities (JCEs): A JCE is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has a long term interest. JCEs are accounted for using the equity accounting method. Jointly controlled assets (JCAs): JCAs do not involve the establishment of a corporation, partnership or other entity. A JCA is a joint venture in which the venturers have joint control over the assets contributed to or acquired for the purposes of the joint venture. This includes situations where the participants derive benefit from the joint activity through a share of the production, rather than by receiving a share of the results of trading. The Group's proportionate interest in the assets, liabilities, revenues, expenses and cash flows of JCAs are incorporated into the Group's financial statements under the appropriate headings. Required Write a report explaining the classification of joint arrangements and the need for different accounting methods. Use the Rio Tinto Note to explain your answer. 1 Question 24.4 On 1 July 2016, Darwin Ltd entered into a joint agreement with Broome Ltd to form an unincorporated entity to produce a new type of widget. It was agreed that each party to the agreement would share the output equally. Darwin Ltd's initial contribution consisted of $2 000 000 cash and Broome Ltd contributed machinery that was recorded in the records of Broome Ltd at $1 900 000. During the first year of operation both parties contributed a further $3 000 000 each. On 30 June 2017, the venture manager provided the following statements: Costs Incurred For the year ended 30 June 2017 Wages $1 840 000 Supplies 2 800 000 Overheads 2 200 000 6 840 000 Cost of inventory (4 840 000) Work in progress at 30 June 2017 $ 2 000 000 Receipts and Payments for year ended 30 June 2017 Receipts: Original contributions $ 2 000 000 Additional contributions 6 000 000 8 000 000 Payments: Machinery (2/7/16) $ 800 000 Wages 1 800 000 Supplies 3 000 000 Overheads 2 100 000 Operating expenses 200 000 Closing cash balance 7 900 000 $ 2 100 000 Assets and Liabilities at 30 June 2017 Assets Cash $ 100 000 Machinery 2800 000 Supplies 400 000 Work in progress 2000 000 Total assets $ 5300 000 Liabilities Accrued wages 40 000 Creditors 300 000 Total liabilities $ 340 000 Net assets $ 4960 000 Each joint operator depreciates machinery at 20% p.a. on cost in its own records. Required: A. Prepare the journal entries in the records of Darwin Ltd and Broome Ltd in relation to the joint operation. B. Prepare the journal entries in the records of Broome Ltd assuming that the joint operation, not the operators, had depreciated the machinery and included that expense in the cost of inventory transferred. 3