QUESTION 4 - Joint Operations (18 marks) Want Ltd and Knot Ltd entered into a joint operation known as Dirt to collect and recycle scrap paper from goverment departments on 1 January 2017. The joint operation agreement states that Want Ltd and Knot Ltd will share output, contributions and costs equally and that Want Ltd and Knot Ltd hold the joint operation assets as tenants in common, with Want Ltd and Knot Ltd each having a 50% interest. The joint operation agreement established the initial contributions as follows: Contribution: Knot Ltd Contribution: Want Ltd Agreed Value Cost $ $ Assets Agreed Value $ 8,000,000 Cost $ 8,000,000 6,200,000 9,700,000 5,900,000 10,000,000 6,200,000 6,800,000 Cash Land Building Less accumulated depreciation Equipment Less accumulated depreciation Total (300,000) 6,000,000 .(700,000) 17,000,000 6,300,000 8,000,000 (500,000) 21,100,000 (10,000,000) 22,200,000" 21,100,000 22,200,000 The depreciation rates used by each of joint operators in their respective financial statements are: Equipment 20%; and Buildings 10%. Both joint operators agreed to record any depreciation of the joint operation using the straight-line method, in their own separate financial statements. There are no residual values for the assets assigned to the joint operation. The joint operators contributed, in total, a further $20,000,000 during the 2017 year with each joint operator contributing the appropriate portion according to their original share in Dirt The joint operators chose not to revalue their remaining interests in the contributed assets in their separate records. By agreement, Want Ltd will manage the joint operation project and will receive a management fee of $1,000,000 per annum. The management fee has been treated as a period expense. $300,000 of this amount remains outstanding at 31 December 2017 and has been accrued in the Joint Operation Memorandum Accounts. The joint operation purchased equipment for $5,000,000 on 1 January 2017, which had a useful life of 5 years, no residual value and was depreciated on the straight-line basis. No sales of joint operation non current assets occurred during the year ended 31 December 2017 I QUESTION 4 - Continued Extracts from the Joint Operation Memoranda Accounts for Dirt are provided below: Statement of Total Costs of Production for year ended 31 December 2017 Wages and salaries Supplies and materials Management fee Administration costs Less: Work-in-progress inventories WIP) Cost of Production 15,500,000 7.500,000 1,000,000 6,000,000 3,000,000 27,000,000 Statement of Assets & Liabilities as at 31 December 2017 Land Building Equipment Cash Work-in-progress inventories (WIP) Total assets Management fee payable to Waste Ltd Other accounts payable Total liabilities $ 6,200,000 15,900,000 19,300,000 9,000,000 3,000,000 53,400,000 (300.000) (15,700,000) (16,000,000 Required: In accordance with the requirements of AASB 11 Joint Arrangements, prepare the following specific journals entries that would be recorded by Want Ltd to account for their interest in the Dirt Joint Operations for the period from 1 January 2017 to 31 December 2017. A. The journal required to record the initial contribution made by Want Ltd on 1 January 2017 to the Dirt Joint Operation. (7 marks) B. The journal required to record depreciation expense for the year ended 31 December 2017 on the buildings and equipment that are utilised by the Dirt Joint Operation. (Ignore the allocation between WIP and Cost of Production) (7 marks) C. Assuming Want Ltd has recognised its proportionate share of the assets, liabilities and costs of production of the Dirt Joint Operation as recorded in the Joint Operation Memorandum Accounts as at 31 December 2017, the journal entry required to adjust Want Ltd's share of the management fee expense and management fee payable by Dirt Joint Operation, (4 marks) You are NOT required to prepare all of the journals related to Want Ltd's involvement in the joint operation, only those specifically requested above