Question 7 10 Marks

PART A

AASB 138 Intangible Assets require that the expenditure on research activities must be expensed.

Required:

Outline the implications of this requirement on firms profit. 3 Marks

PART B

On 1 July 2020, Canberra Ltd enters into a joint operation with New South Wales Ltd to form an unincorporated entity to produce a new type of building product. All the current and future contributions are to be based on a 50:50 split, as are the future distributions of outputs.

Canberra Ltds initial contribution consists of $4,000,000 cash and New South Wales Ltd contributes machinery that is recorded at $3,800,000. The fair value of machinery is

$4,000,000. During the first year of operation both parties contributed a further $6,000,000 cash.

Required:

Provide the journal entries in the book of Canberra Ltd and in the book of New South Wales Ltd to account for the joint operators contributions to the joint operation.

7 Marks

Ignore tax effect.