Please explain where do those numbers that I have circled an

PRACTICE QUESTION 4 ? TOPIC 8-JOINT OPERATION Fern Tree Gully Fern Limited, Tree Limited and Gully Limited entered into a joint operation on 1 July 2013 to manufacture environmentally friendly potting containers. It was agreed that the three participants would share costs and output based on their percentage contributions that is 40%, 40% and 20% respectively. According to the joint operation agreement, Fern Limited and Tree Limited each contributed $20,000,000 and Gully Limited contributed $10,000,000 to establish the joint operation in the following form: ntribution - Fern LimitedAgreed ost Accumulated 40% Cash Equip Value Life 9,000 2.000 9,000 20,000 9,000 2,000 5,000 16,000 1,000 10 years 1,000 Total ntribution Tree Limited 40% Agreed Value Accumulated Useful Depreciation ost Life S000 15,000 5,000 20,000 $000 15,000 1,500 16,500 $000 Equipment Total 1,000 10 1,000 Contribution - Gully Limited Agreed Value AccumulatedUseful 20% ation Life Patent Total 10,000 10,000 $000 10,000 10,000 The joint operators chose not to revalue their remaining interests in the contributed assets in their separate records. All joint operators agree to record any depreciation or amortisation of the joint operation in their own books. There are no residual values for the assets of the joint operation. During the year ended 30 June 2014, Fern Limited, Tree Limited and Gully Limited contributed a further total of $10,000,000 cash to the joint operation in the same ratio as their initial interests. Fern Limited was appointed Joint Operation Manager, receiving a sum of $500,000 for this service during the first year of operation. This service fee is included in the Administration costs reported in the Statement of Cash Receipts and Payments shown on the next page The financial statements for the joint operation for the year are as follows: Joint O Statement of Financial Position as at 30 June 2014 $000 2,000 Venturer\'s interest 3,000 $000 35,000 Inventories-WIP 20,000 Trade 10,000 Accrued wages 1,000 1,000 Patent Land Total 2,000 20 37,000 Total 37,000

Solution

A1 - Agreed Value of :

1. Cash - $ 9000k

2. Land- $ 2000k

3. Equipment $ 9000k

Therefore Fern Limited\'s interest in Joint Operations as on 01.07.2013 = $ 20000k

A2- Gain on transfer of Equipment to Joint Venture

Agreed Value of Equipment transferred = $ 9000

Less: Cost Net of Accumulated Depreciation= $5000k - $ 1000k = $ 4000k

Therefore Gain should be = $ 5000k

To the best of my knowledge, the Journal Entry A should be as follows

Interest in Joint Operation Dr. $20000k

Accumulated Depreciation Dr $ 1000k

To Cash $ 9000k

To Land $ 2000k

To Equipment $ 5000k

To Gain on sale of Equipment $ 5000k

D1 - The equipment of $ 5000k contributed by Tree Limited has been specified in the respective contributions made by the three companies. Please refer to the second table from the top titled \" Contribution- Tree Limited\". In that table, the agreed value of equipment supplied by Tree Limited has been mentioned as $ 5000k.

D2- The amount of additional equipment of $6000 added can be computed as follows

Value of Equipment as on 30.06.2014 ( as per the statement of Financial Position of Joint Operation) = $ 20000k

Less: Agreed Value of Equipment supplied by Fern and Tree Limited respectively = $ 9000k + $ 5000k = $ 14000k

Therefore, further addition made during the relevant period = $ 20000k - $ 14000k = $ 6000k

E1, E2, E3- In the Joint Operation Statement of Financial Position as on 30.06.2014

Trade Payable and Accrued Wages of $1000k each have been mentioned, which translates to $400k each ($1000 * 40%) for Fern Limited (as his interest in the Joint Venture is 40%). Therefore his total share of liability= $800

G1 & G2 refers to Fern\'s share of Depreciation on Equipment ($ 6000k*10%) and Amortisation on Patents ( $ 4000k*10%). Refer to Journal Entry D for Fern Ltd.\'s share of Equipment and Patent and multiply it with rate of Depreciation of 10%.

G3- Refers to Fern\'s Limited\'s share in the Value of Patent (in the joint operation) = $10000k * 40%= $ 4000k

H3- Cost of Production = $ 10000k (Refer to Journal Entry F)

Add: Depreciation and Amortisation allocated to Cost of Production ( Refer to Jounal Entry G)= $ 893k

Less: Management Fees Received which had been included in Administrative costs (Refer to Journal Entry C) = $200k

Net Cost of Production= $ 10693k

[Note: Since the above of $10000k includes Management Fees charged by Fern Limited only to the extent of his share in Joint Venture i.e. 40% . Therefore, Management Fees to the extent of 40% should be deducted ]